[House Report 106-29]
[From the U.S. Government Publishing Office]
106th Congress Rept. 106-29,
HOUSE OF REPRESENTATIVES
1st Session Part 1
======================================================================
FEDERAL RETIREMENT COVERAGE CORRECTIONS ACT
_______
February 23, 1999.--Ordered to be printed
_______
Mr. Burton of Indiana, from the Committee on Government Reform,
submitted the following
R E P O R T
[To accompany H.R. 416]
[Including cost estimate of the Congressional Budget Office]
The Committee on Government Reform, to whom was referred the
bill (H.R. 416) to provide for the rectification of certain
retirement coverage errors affecting Federal employees, and for
other purposes, having considered the same, report favorably
thereon without amendment and recommend that the bill do pass.
CONTENTS
Page
I. Summary of Legislation...........................................1
II. Background and Need for the Legislation..........................3
III. Legislative Hearings and Committee Actions.......................7
IV. Committee Hearings and Written Testimony.........................7
V. Explanation of the Bill.........................................13
VI. Compliance With Rule XIII.......................................30
VII. Budget Analysis and Projections.................................30
VIII.Cost Estimate of the Congressional Budget Office................31
IX. Specific Constitutional Authority for this Legislation..........37
X. Committee Recommendation........................................37
XI. Congressional Accountability Act; Public Law 104-1..............38
XII. Unfunded Mandates Refrom Act; Public Law 104-4, Sect. 423.......38
XIII.Federal Advisory Committee Act (5 U.S.C. App.) Section 5(b).....38
XIV. Changes In Existing Law.........................................38
I. Short Summary of Legislation
Through no fault of their own, thousands of Federal
employees have been erroneously placed in the wrong Federal
retirement system. The vast majority of these errors involve
misclassifications in either the Federal Employees Retirement
System (FERS) or the Civil Service Retirement System (CSRS).
When these errors are discovered, the Office of Personnel
Management (OPM) and other Federal agencies must correct the
mistake by automatically enrolling misclassified employees in
the correct system. Because corrections do not currently
include make-whole relief, their effects are often devastating
for the employees involved.
The Federal Retirement Coverage Corrections Act addresses
this problem and accomplishes a number of objectives: It
provides comprehensive coverage of retirement coverage errors.
Employees affected by an error are provided a status quo
option, and employees' Thrift Savings Plan (TSP) accounts are
made whole. Agencies are held accountable for their mistakes.
Unfair tax consequences of corrections are prevented. To ensure
fairness and accuracy, the bill requires centralized oversight
of the corrections process and provides affected employees with
administrative and judicial review. The bill protects the
integrity of the Social Security trust funds, and it protects
all employees from reductions in force (RIFs) to pay for the
required remedies.
The bill provides a consistent framework to correct all
retirement coverage errors for employees with accounts in the
Civil Service Retirement and Disabilities Fund (CSRDF) and also
covers former employees, annuitants, and survivors. It extends
the same correction options to employees in retirement systems
for the Foreign Service and the Central Intelligence Agency.
With two exceptions, employees may choose between the
retirement system they were mistakenly placed in or the system
they should have been placed in retroactively to the date of
the error. One exception prevents employees who were
erroneously placed in the CSRS from electing that system; they
may, however, choose to be enrolled in the CSRS-Offset system.
The other exception affects employees who should have been in
Social Security only, without retirement participation, but who
were erroneously enrolled in one of the Federal retirement
systems. These employees may not remain in a Federal retirement
system unless they had already vested.
The bill adapts an Internal Revenue Service (IRS) Revenue
Procedure, Rev. Proc. 94-62, that applies to similar mistakes
in the private sector as a model to make whole contributions to
employees' TSP accounts. The agencies responsible for
retirement coverage errors bear the cost of making up lost
earnings on employees' TSP accounts. Agencies, not employees,
make all necessary contributions to the Civil Service
Retirement and Disability Fund (CSRDF), Social Security trust
funds, as well as the TSP. They also pay the reasonable costs
of financial and legal advice employees need to make informed
decisions under the Act. In some cases, agencies may collect
from employees an amount equal to the refund of Social Security
contributions due the employees.
The bill's tax provisions prevent employees from incurring
undue tax burdens as a result of an election under this Act.
OPM will be required to issue regulations to ensure uniform
implementation of the bill's provisions and to ensure that
employees are properly informed as to the status of their
various retirement accounts in order to make an informed
election. Corrections under the bill are not final until
approved by OPM. Employees may appeal corrections to the Merit
Systems Protection Board (MSPB), and seek judicial review by
the United States Court of Appeals for the Federal Circuit. The
bill does not impair any right employees may have to sue for
other damages under the Federal Tort Claims Act.
The integrity of the Social Security trust funds is
preserved. The bill amends the Social Security Act so CSRS-
eligible employees who choose coverage under FERS or Social
Security may receive Social Security benefits. Current law
excludes CSRS-eligibles from the Social Security program.
II. Background and Need for the Legislation
Most civil servants are covered by one of two distinctly
different retirement systems, CSRS and FERS. The CSRS is a
stand-alone defined benefit retirement plan that does not
include Social Security coverage. FERS, on the other hand, is a
three-tiered system consisting of Social Security coverage, a
defined benefit plan, and the TSP. The TSP is a defined
contribution plan, similar to 401(k) plans offered by many
private employers, which is administered by the Federal
Retirement Thrift Investment Board (Thrift Board). (CSRS
employees who vested in CSRS before separating from the
government for more than one year may be covered by a variant
of the CSRS system called CSRS-Offset. A hybrid, CSRS-Offset
also takes account of Social Security benefits to which the
employee may be eligible.) Contributions to the TSP are an
essential part of the FERS system because the FERS basic
annuity is substantially lower than the CSRS annuity.
Under CSRS, 7% of employees' basic pay is withheld from
their pay and deposited in the CSRDF. Social Security taxes are
not withheld, and CSRS employees are not eligible to
participate in Social Security. CSRS employees may contribute
up to 5% of their basic pay to the TSP, but, unlike FERS,
agencies make no contribution on their behalf. Their CSRS
annuity is calculated based on the average of the highest 3
salaries earned. The salary replacement rate accrues at 1.5%
per year for the first 5 years of service, 1.75% for the next 5
years, and 2% for each year after the first 10. After a thirty-
year career, retiring CSRS employees would thus receive a
pension worth approximately 56 percent of the average high 3
years of pre-retirement salaries.
FERS employees pay full Social Security taxes (in 1999,
6.2% on the first $72,600) plus an amount equal to the
difference between 7% of basic pay and the Social Security tax
rate as the employee share of the FERS defined benefit. The
percentage of pay employees have contributed to the TSP has
increased gradually since 1988. Currently FERS employees
average about 6.4%, but may contribute up to 10% of their
salary, subject to the IRS cap (currently $10,000 per year).
The employing agency automatically contributes at least 1% of
basic pay to the TSP, even if the employee contributes nothing,
and will match employee contributions up to 5%. The FERS
benefit is also calculated based on the average of the highest
3 salaries earned. The salary replacement rate accrues at 1%
per year of service, which increases to 1.1% if retirement is
after age 62. After a thirty-year career, retiring FERS
employees would thus receive a pension worth approximately 30
percent (33 percent at age 62 or over) of the average high 3
years of pre-retirement salaries plus the same Social Security
benefits payable to a similarly situated private sector
retiree.
The Balanced Budget Act of 1997 raised FERS and CSRS
employee contributions by 0.5% of pay according to the
following schedule: 0.25% beginning in January of 1999, and
additional 0.15% in January 2000, and the final 0.10% in
January 2001. Absent Congressional action to extend the
additional contributions it is due to expire in January of
2003.
On December 31, 1983 the CSRS was closed to new
enrollments. Effective January 1, 1984 new Federal employees
were put into the Social Security system, and their retirement
deductions held in a CSRS Interim account pending creation of a
new retirement system. On January 1, 1987, FERS was
established. In addition to their Social Security deductions
(currently 6.2%), FERS employees also contribute an amount
which is the difference between 7% of pay and the Social
Security deduction.
Since no new system existed from January of 1984 to January
1, 1987, new hires during this period were left in limbo. After
the creation of FERS, all employees in the CSRS Interim plan
were to be transferred into FERS. Unfortunately, many employees
were not transferred and were left with the erroneous belief
that they were correctly enrolled in the CSRS. Approximately
200,000 new Federal employees were hired during this time, and
some as yet unknown fraction of them may have been affected.
Other employees have also been affected by retirement
enrollment errors. These include temporary employees who
converted from positions for which retirement benefits were not
available, to permanent employment status under which they
would qualify for FERS but not CSRS. They also include
employees re-hired after a break in service and employees with
creditable military service. Some of these errors occurred
after the January 1987 creation of FERS, thereby extending the
time period during which employees may have been affected by
enrollment errors.
``CORRECTION'' PROCEDURES
OPM has identified twelve different scenarios under which
Federal employees might become enrolled in the wrong retirement
system. These situations are shown on Chart 1.
The most challenging scenarios are those that require
moving employees between CSRS or CSRS-Offset enrollment and
FERS enrollment. These are the errors that hold the greatest
potential for serious financial consequences to the employees
because of the need to establish or maintain TSP accounts.
When agencies shift people from CSRS to FERS, the employees
have no choice in the conversion, no matter how long they have
worked for the government. The law does not permit anyone to
have become enrolled in CSRS after January 1, 1984, so OPM has
held that agencies cannot leave people in CSRS if they do not
belong there.
CHART 1. ERRONEOUS RETIREMENT ENROLLMENTS--PROPOSED CORRECTIONS
----------------------------------------------------------------------------------------------------------------
Wrongly entered into:
---------------------------------------------------------------------------
Should have been in: Social Security
CSRS CSRS-Offset FERS only
----------------------------------------------------------------------------------------------------------------
CSRS................................ (1).............. Subtitle F, Sect. Subtitle D, Sect. Subtitle B, Sect.
152/153-- 132/134-- 114--employee
employee elects employee elects elects to (1)
to (1) stay in to (1) stay in stay or (2) move
Offset or (2) FERS or (2) to CSRS; make-
switch to CSRS; switch to CSRS; whole provisons
make-whole if switches to for TSP
provisons do not Offset gives up contributions
apply. earnings and apply.
govt match and
govt 1% in TSP,
but keeps own
TSP
contributions
and earnings;
make-whole
provisions do
not apply.
CSRS-Offset......................... Subtitle E, Sect. (1).............. Subtitle D, Sect. Subtitle B, Sect.
141--move 133/135-- 113--employee
employee into employee elects elects to (1)
Offset system; to (1) stay in stay or (2) move
make-whole FERS or (2) to CSRS-Offset;
provisions do switch to CSRS- make-whole
not apply. Offset; (if provisions for
switch see TSP contribution
above). apply.
FERS................................ Subtitle A, Sect. Subtitle A, Sect. (1).............. Subtitle B, Sect.
102/104/106 103/105/106 112--employee
employee elects employee elects elects to (1)
to (1) move to to (1) stay in stay or (2) move
CSRS-Offset or CSRS-Offset or to FERS; make-
(2) switch to (2) switch to whole provisions
FERS; if switch FERS; if switch for TSP
make-whole make-whole contributions
provisions for provisions for apply.
TSP contribution TSP
apply. contributions
apply.
Social Security only................ Subtitle C, Sect. Subtitle C, Sect. Subtitle C, Sect. (1).
123/125-- 122/125-- 121/125--
employee elects employee elects employee elects
to move to CSRS- to stay in CSRS- to stay in FERS
Offset or opt Offset or opt or opt into
into Social into Social Social Security
Security only; Security only; only; if not
if not vested in if not vested in vested remove;
CSRS remove; if Offset remove; if opt out
opt out of CSRS if opt out of refund
refund CSRS refund contributions in
contributions in contribtions in excess of OASDI
excess of OASDI excess of OASDI with interest;
with interest; with interest, permit personal
permit TSP permit TSP TSP deposits to
deposits to deposits to remain in TSP;
remain in TSP. remain in TSP. forfeit govt 1%
and matching
funds.
----------------------------------------------------------------------------------------------------------------
1 Not applicable.
OPM requires agencies to take corrective actions
immediately upon discovery of an enrollment error. Agencies
have sometimes performed ``stealth'' corrections, where they
simply alter personnel records, then let the affected employees
find out about the change later. One witness at a Civil Service
Subcommittee hearing on this issue, for example, saw a shift in
his CSRS account balance on his payroll stub. When he called
the personnel office, the personnel officer started the
conversation, ``I've been dreading this call for two months * *
*.'' Another victim of these adjustments, a 59-year old GS-7
grandmother employed by the Department of Housing and Urban
Development, is still facing increased Social Security
deductions from her pay each pay period.
The experience of two workers at the Portsmouth Naval
Shipyard in Maine also demonstrates the difficulties faced by
thousands of other employees. One, a 60-year old who had been
planning on retiring at age 62, learned that he owed back
Social Security taxes of $10,000 and would have to contribute
$600 a month to the TSP for the rest of his working career
because his agency placed him in the wrong retirement system.
Because of the agency's mistake, he will also have to work
until age 65. The other employee, who is in his mid-forties,
owes more than $10,000 in back Social Security taxes, and only
by jeopardizing his ability to pay for his son's college
education will he be able to establish an adequate TSP account.
Attempts to make employees whole through administrative
action have been complicated by statutory restrictions.
Reconstructing Social Security accounts is hampered by the six
year IRS limit on repayment of old Social Security taxes. Lump
sum deposits in TSP accounts to make up lost employee
contributions have only recently been permitted. Until it
adopted new regulations on January 29, 1998, the Thrift Board
held that make-up contributions by employees could not be
attributed to past years, but had to be counted against the
applicable IRS deferral limit for the year in which they were
made.
DAMAGES TO FEDERAL EMPLOYEES FROM ENROLLMENT ERRORS
Employees who should have been in FERS, but who were
wrongly enrolled in either CSRS or CSRS-Offset are exposed to
the most serious harm. These employees have not been permitted
to participate fully in the TSP. Nor were they encouraged by
the availability of government matching contributions to
participate. In addition, until they are notified of the error,
these employees believe that they are in a system that will
provide a much higher retirement annuity upon retirement and
structure their financial planning accordingly. Consequently,
when the error is uncovered, their financial plans are thrown
into disarray and they frequently find themselves with TSP
accounts that are substantially lower than they would have been
had the employees known they would receive only a FERS annuity.
To compound the problem, it is simply unrealistic to expect
that many of these employees would have the financial resources
available to make retroactive TSP contributions. Certainly that
would be impossible for many lower-paid Federal employees. But
even many high-paid employees would find themselves faced with
such difficult dilemmas as choosing between fully financing
their own retirement or providing for their children's
education, all because a Federal agency made an error.
The Committee believes that the victims of these agency
errors should be given a meaningful choice between enrollment
in the retirement system they should have been placed in or
continued enrollment in the erroneous system. But that
objective cannot be achieved unless the Federal Government
shoulders the burden of making up past employee contributions
to the TSP. That is the very same burden the IRS's Rev. Proc.
94-62 calls upon private employers to assume in similar
circumstances. Private employers are required under Rev. Proc.
94-62, to make a contribution on behalf of employees equal to
the average contribution percentage of the employee's group,
including any matching contributions. The Revenue Procedure
also requires that ``the correction method should restore both
current and former participants to the benefit levels they
would have had if the defect had not occurred.''
In order to implement these principles, the bill requires
agencies to make retroactive TSP contributions for affected
employees based upon the average contribution rates of
appropriate TSP contributors. Agency matching contributions and
lost earnings based upon the average investment allocations of
TSP participants are also required.
In the 105th Congress, the House passed H.R. 3249, a bill
with identical rectification provisions to correct these
retirement errors. However the Senate took no action on it.
III. Legislative Hearings and Committee Actions
The Committee did not hold legislative hearings on this
bill. Rep. Joe Scarborough introduced H.R. 416 on January 19,
1999. The bill was referred to the Committee on Government
Reform and, in addition, to the Committee on Ways and Means on
January 19, 1999. On February 3, 1999, the Committee on
Government Reform considered the bill and ordered it reported
to the House by voice vote.
IV. Committee Hearings and Written Testimony
The Committee has not held any hearings on this bill during
this Congress. In the 105th Congress, however, the Subcommittee
on the Civil Service held both an oversight hearing on this
problem on July 31, 1997 and a legislative hearing on H.R.
3249.
Several employees who had been victimized by agency
retirement coverage errors testified at the oversight hearing.
They were: Alan White (Office of the Inspector General,
Department of Defense), David Mangam (Army War College), Mr.
John Gabrielli (Internal Revenue Service), and E. Barry Schrum
(Department of Energy). Other witnesses were William E. Flynn,
Associate Director, Retirement and Insurance Service, Office of
Personnel Management; Sarah Hall Ingram, Associate Chief
Counsel, Employee Benefits/ Exempt Organizations, Internal
Revenue Service; Diane Disney,Deputy Assistant Secretary
(Civilian Personnel), Department of Defense; and Linda Oakey-Hemphill,
Agency Retirement Counselor, Department of the Treasury.
Mr. Alan White reported that he was hired by the Department
of the Air Force as a criminal investigator in August 1984, and
had remained in CSRS through his transfer to the Inspector
General's office in the Department of Defense. The mistake in
his retirement enrollment was detected when he requested an
estimate of the cost of buying CSRS credit for his military
service. His personnel office changed his retirement enrollment
to FERS on February 28, 1996, retroactive to his entry on duty
in 1984. He learned about the change by mail on a Saturday,
when his leave and earnings statement reported a drop in his
CSRS account from $51,000 to $103. His personnel office did not
notify him of the change until April, and both his agency and
OPM proved unresponsive in providing guidance. Mr. White read a
statement from Mrs. Deborah Monroe, a GS-7 program assistant in
the Chicago office of the Department of Housing and Urban
Development who had been in the CSRS since August of 1983 and
was involuntarily converted to FERS in 1995. She reported that
both her agency and OPM told her that nothing could be done to
correct her situation.
Mr. David Mangam of the Army War College had completed a
military career when he accepted an overseas limited
appointment from the Department of Defense in 1983. In 1984, he
gained a career-conditional appointment at the Army War
College, and was enrolled in CSRS when hired. He indicated that
he would not have accepted the position unless he was able to
benefit from the coverage of the CSRS, because he was
interested in converting his military service under that
system. The agency changed his enrollment in November of 1996
and OPM's review fully supported the agency's action. He
reported that the complete transition between the systems would
require 257 pay periods--or nearly 10 years. He estimated that
the mistake would cost him $30,000 per year, assuming
retirement after 35 years of service. He also reported
suffering aggravation of a diabetic condition that his doctors
associated with the stress of the transition.
Mr. John Gabrielli of the Internal Revenue Service's
Buffalo, NY, office reported that he began service as a
temporary appointee and was converted to career-conditional
status in September 1984, at which time he was enrolled in
CSRS. He was provided an opportunity to enroll in FERS during
1987, but rejected it. He and four other employees were
notified of the enrollment error on April 13, 1993, and were
adjusted to FERS coverage, effective in May of 1991. He
reported that he still had not received notice of what credit
he would receive for funds transferred from his CSRS account to
his Social Security account, and whether he would receive a
refund of any differences. He noted that the National Treasury
Employees Union had assisted efforts to get appropriations
language requiring OPM to address the issue, but that OPM had
not provided a solution to date.
Mr. E. Barry Schrum is a criminal investigator with the
Department of Energy's Office of Inspector General. He was
hired in December of 1984 and enrolled in the CSRS under law
enforcement retirement provisions. He, too, had been provided
opportunity to elect FERS coverage in 1987, but chose to remain
in CSRS. The Department's OIG personnel office informed him of
the mistaken enrollment in April of 1996 and notified that he
would be retroactively changed to FERS enrollment. That change
was made effective in a June 25, 1996 memorandum. He testified
that he was informed at that time that he would be able to make
retroactive contributions to the TSP, and that he would have to
remain continuously employed in the Federal service for eight
years to make up the back contributions to the TSP. He
recommended legislation that would require the agencies that
made the mistakes to make employees whole, and submitted a
letter from the Department of Energy attorney which claimed
that the Department lacks the authority to compensate employees
for these errors under current law.
Under questioning, all of the employee witnesses asserted
that they had little support from their agencies and virtually
none from OPM. Two of the witnesses were parties to litigation
in a Federal district court, after completing administrative
review through their agencies and having an initial claim from
Mr. White denied by the Merit Systems Protection Board. They
reported extensive legal fees associated with the litigation
and the administrative reviews. Mr. Gabrielli reported that he
lacked the means to pursue resolution of his case through an
attorney, and that he was assisted by his union.
Mr. William E. Flynn of the Office of Personnel Management
noted that the resolution of this problem would require actions
of OPM, the Thrift Board, the Internal Revenue Service, the
Social Security Administration, and the Treasury Department. He
reported that these agencies were conducting discussions, but
that they had not agreed on a solution to the problems
associated with enrollment errors. He added that a
comprehensive solution is desirable to address concerns of
employees, former employees, annuitants, and survivors who have
been affected by these concerns. Under questioning from Mr.
Mica and Mr. Cummings, Mr. Flynn agreed to submit a proposal to
resolve these problems to the Subcommittee no later than
September 10, 1997. Mr. Flynn admitted that OPM had no idea of
the number of individuals affected by these enrollment errors,
and that he could not estimate the cost of correcting the
errors throughout the Federal service.
Ms. Sarah Hall Ingram of the Internal Revenue Service
admitted that the range of legal and tax policy questions
associated with correcting these errors in retirement coverage
were complicated and unclear. The IRS administers and collects
the FICA taxes paid to the Social Security system, and private
employers are normally required to deposit these in a timely
manner. Federal employers are subject to nearly identical
requirements for payment of these taxes. Few of these
procedures, however, are intended for situations where mistakes
in calculating the tax obligation require correction years
after the tax should have been paid. She also noted that the
Internal Revenue Code restricts the amount that an employee can
contribute to a tax-deferred retirement account, and that such
limits might have to be amended as part of any resolution of
these issues.
Ms. Diane Disney reported that the Department of Defense
had found as many as 3,100 employees of the approximately
170,000 hired between 1984 and 1986 who mighthave been placed
into wrong retirement systems. In reviewing those records, many of the
CSRS classifications were correct because of previous Federal service,
but she conceded that the Defense Finance and Accounting Service is in
the process of correcting 500 employees' records. She noted the
difficulties of correcting mistakes that are now more than 10 years
old, and that some of the options essential to make employees whole are
not authorized by current law.
Ms. Linda Oakey-Hemphill of the Department of the Treasury
described extensive interagency negotiations to attempt
resolution of the issues, and reported that such concerns had
been raised as early as 1987. She noted that the automated
information available in personnel systems is not adequate to
identify the enrollment errors, and does not provide adequate
guidance for resolution of the cases. She reported that the
Department of the Treasury had corrected as many as 600 cases
since 1992, but could not estimate the number of additional
errors that could remain in the system.
The subcommittee also held a legislative hearing
immediately before it marked up the Chairman's draft of H.R.
3249. Witnesses at that hearing were William E. Flynn,
Associate Director, Retirement and Insurance Service, Office of
Personnel Management; Roger W. Mehle, Executive Director,
Federal Retirement Thrift Investment Board; Thomas O'Rourke,
Partner, Shaw, Bransford & O'Rourke, Washington, DC; and Daniel
F. Geisler, President American Foreign Service Association.
Mr. Flynn testified that the Administration strongly
preferred legislation that it had prepared to deal with the
problem of misclassified employees and urged the subcommittee
to use that bill rather than the Chairman's mark as the basis
for legislation. He contended that the Administration's bill
represented the consensus of a number of agencies to resolve
the myriad intricate and intertwined aspects of the problems
created by agency errors. In his view, corrective legislation
must meet four discrete objectives:
(1) the remedy must demonstrate that the government
cares about Federal employees who have been harmed by
retirement coverage errors and is committed to an
equitable solution for these employees and their
families;
(2) employees should have a choice between corrected
coverage and the benefit they expected to receive
without disturbing Social Security coverage laws;
(3) the options provided to the employee should be
easy to understand; and
(4) administrative aspects of the remedy should be
minimized to keep the solutions simple and timely.
He argued that the Administration's bill satisfies these
criteria. Mr. Flynn also testified that there were
``fundamental differences'' between the Administration's bill
and the language under consideration by the subcommittee. Under
both approaches, he said, employees who were erroneously placed
in CSRS or CSRS-Offset will have the option of retroactive
placement in FERS, but only under the subcommittee's proposal
would individuals electing FERS coverage be entitled to a
substantial agency-funded payment to the TSP. He pointed out
that misclassified employees may make retroactive contributions
to the TSP and receive matching contributions and earnings.
Mr. Flynn acknowledged that the subcommittee's proposal is
based upon rules applicable to defined contribution plans in
the private sector. However, he contended that private sector
rules were inappropriate because Federal employees may
participate in both defined contribution and defined benefit
plans. He also argued that government make-up contributions to
the TSP on behalf of individuals create ``intractable''
problems involving cost, equity, and complexity, while the
Administration's plan provides adequate ``make whole'' relief
by offering CSRS or CSRS-Offset coverage as alternatives to
FERS. According to Mr. Flynn, this approach is satisfactory
because employees ``will always receive at least as much as
they believed they were going to get.'' In contrast, he
contended that the subcommittee's approach would overcompensate
some employees and under compensate others. Finally, Mr. Flynn
also argued that the subcommittee's approach was unnecessarily
complex, in part because it held agencies accountable for their
errors rather than make payments from the retirement fund.
Mr. Mehle presented the views of the Thrift Board and
emphasized that the Thrift Board does not take a position on
the appropriateness of benefit levels available under the
retirement programs or the TSP. He also noted that the Thrift
Board first addressed the problem of misclassified employees in
1989 when it proposed legislation to permit agency payments of
lost earnings employees suffered when agencies failed to permit
timely employee contributions to the TSP. That proposal was
enacted. However Congress did not then adopt the Thrift Board's
suggestion that it allow misclassified employees to elect to
remain in the CSRS, even though the Board recognized then that
the procedures it recommended would not provide an adequate
remedy in the case of a long-standing retirement coverage
error. In his testimony, Mr. Mehle acknowledged that many
employees may be disadvantaged by current rules that leave them
responsible for making up lost employee contribution, either
because they have only a relatively short period of active
service before retiring or because they lack the financial
resources to make themselves whole.
Both the Administration and subcommittee proposals, Mr.
Mehle noted, would allow affected employees to elect coverage
under CSRS or CSRS-Offset and predicted that most would choose
that option. He also noted that whereas the Administration's
proposal would simply apply existing correction law, the
subcommittee's approach would create a new system to deal with
misclassification errors. However, he contended that the
subcommittee's proposal might create unintended consequences
and impose significant administrative burdens on the Thrift
Board. The unintended consequences largely consisted of what he
considered disparate treatment of affected employees. He also
argued that because the corrective mechanism under the
subcommittee proposal differed so substantially from current
rules, the Thrift Board would not be able to use its existing
software or computers to perform calculations and,
consequently, would have to contractfor that service. In
addition, he argued that the Thrift Board would not have ready access
to the information it would need to perform the tasks assigned to it
under the subcommittee proposal.
Mr. O'Rourke testified that he is an attorney in private
practice who specializes in tax, pension, and estate issues. He
was then representing a number of Federal employees who were
improperly placed in the CSRS and then involuntarily switched
to FERS. He estimates that he has been contacted by
approximately 50 such individuals. The losses these individuals
suffer, he stated, result from the fact that FERS participants
will receive significantly smaller annuities than their CSRS
counterparts and have been denied the opportunity to
intelligently plan for a FERS retirement by building up an
adequate TSP balance. He also described the ``anguish and
frustration'' these retirement coverage errors have caused the
employees who have contacted him. Two of his clients have
suffered heart attacks, one has had a nervous breakdown as a
result of the stress created by this problem, and a number have
described marital problems. They have found agency personnel
sympathetic to their plight, but impotent to provide a
satisfactory remedy under existing law.
Mr. O'Rourke emphasized that legislation is necessary to
resolve the problem of misclassified employees. After reviewing
both the Administration's proposal and the subcommittee's, Mr.
O'Rourke concluded that the subcommittee's approach was
preferable. He believed that both proposals took positive steps
to protect affected employees by allowing them to choose
retirement coverage that provides essentially the same benefits
they thought they would earn. However, he found the
Administration's approach unfair to individuals who, after
being notified of the retirement coverage error and removed
from CSRS, have attempted to mitigate their losses. In his
view, the Administration's draft would not make such
individuals whole and would even punish them further by
inflicting significant financial harm on them whichever option
they chose. Employees who choose FERS coverage would lose
forever the earnings on contributions they could have made
during the period of erroneous coverage. Those who elect CSRS-
Offset would be exposed to additional income taxes and penalty
taxes based upon distributions from their existing TSP
accounts.
In contrast, Mr. O'Rourke testified, the subcommittee's
approach attempts to make individuals whole and would not
expose them to additional tax burdens. He also contended that
the subcommittee's proposal includes a ``reasonable and
objective mechanism'' to provide make whole relief for those
electing FERS coverage that prevents individuals from making
TSP investment decisions based upon hindsight, yet relieves
them of the financial burden of correcting an error they did
not cause.
Nevertheless, Mr. O'Rourke criticized the subcommittee's
draft for requiring employees to make retroactive Social
Security contributions. In the private sector, he pointed out,
such costs would be borne by employers, and he believed the
Federal government should bear the same burden it imposes on
other employers. He also faulted both proposals for not
explicitly preserving employees' rights to relief under other
statutes, such as the Federal Tort Claims Act and the Back Pay
Act. This, he argued, is necessary to permit employers to
compensate employees for all of the harm they have suffered as
a result of these agency errors.
Mr. Geisler testified on behalf of the American Foreign
Service Association (AFSA). AFSA is a professional association
for 23,000 active and retired foreign service officers and
specialists, and it serves as the bargaining agent for foreign
service personnel at the State Department, the Agency for
International Development, the U.S. Information Service, the
Commerce Department's Foreign Commercial Service, and the
Department of Agriculture's Foreign Agricultural Service.
In AFSA's view, employees who are victims of these agency
errors should have real options, which requires make-whole
relief of the kind provided in the subcommittee proposal. He
illustrated this by citing the example of a foreign service
officer who was erroneously placed in the Foreign Service
Retirement and Disability System, which is analogous to CSRS,
on January 1, 1987. This error was not discovered until August
1997. Upon discovery, he was placed in the Foreign Service
Pensions System (FSPS), which is similar to FERS. The agency
credited the individual's TSP account with the automatic 1%
agency contribution for the period of erroneous coverage, and
will make retroactive contributions with the appropriate agency
match. However, because the TSP is an integral part of the
FSPS, the individual is now faced with the need to make up 10
years' worth of contributions. And even if he makes such
contributions, he will lose the earnings he would have realized
on those TSP contributions had they been made over the years.
Mr. Geisler pointed out that employees who do not have much
discretionary income cannot reasonably be expected to
immediately contribute years of foregone employee
contributions. Consequently, they would be left with inadequate
retirement coverage.
AFSA believes the make-whole relief in the subcommittee's
proposal permits employees the opportunity to make real
choices. Mr. Geisler believes the averaging methods proposed in
the subcommittee's draft benefits those on the lower end of the
pay scale more than higher-paid employees. Nevertheless, he
found it a fair approach because it prevents the use of ``20/20
hindsight'' by making retroactive investments without risk and
it helps those lower-paid employees who need it most. Under the
subcommittee's approach, Mr. Geisler believes individuals will
be able to choose freely the retirement system that is best
suited for them rather than being forced to remain in the older
system simply because they cannot afford to make prohibitively
high TSP contributions.
V. Explanation of the Bill as Reported: Section-by-Section
Section 1. Short Title; Table of Contents
This act may be cited as the ``Federal Retirement Coverage
Corrections Act.''
Section 2. Definitions
This section defines the key terms used in the Act.
1. ``CSRS''
2. ``CSRDF''
3. ``CSRS covered''
4. ``CSRS-offset covered''
5. ``Employee''
6. ``Executive Director of the Federal Retirement
Thrift Investment Board''
7. ``FERS''
8. ``FERS covered''
9. ``Government''
10. ``OASDI taxes''
11. ``OASDI employee tax''
12. ``OASDI employer tax''
13. ``OASDI trust funds''
14. ``Period of erroneous coverage''
15. ``Retirement coverage determination''
16. ``Retirement coverage error''
17. ``Social Security-only covered''
18. ``Thrift Savings Fund''
Section 3. Applicability
The Act applies to all errors that have not been corrected
within one year of the occurrence of the error, regardless of
whether the error occurred before enactment of the Act.
EXCEPTION: The Act does not apply to any retirement coverage or
action affecting coverage for any pay period beginning before
January 1, 1984.
Section 4. Restriction relating to future corrections
After the date of enactment, all retirement coverage errors
must be corrected in accordance with the Act. No employee
affected by a retirement coverage error can be excluded from or
made subject to any retirement system solely for the purpose of
correcting the error. The Act does not affect retirement
coverage elections that are unrelated to retirement coverage
errors. The Office of Personnel Management (OPM) will publish
regulations that apply the Act to any employee who, other than
under this Act, makes a voluntary election to change retirement
coverage.
Section 5. Irrevocability of elections
Elections made (or deemed to have been made) under this Act
are irrevocable.
TITLE I--DESCRIPTION OF RETIREMENT COVERAGE ERRORS TO WHICH THIS ACT
APPLIES AND MEASURES FOR THEIR RECTIFICATION
Subtitle A--Employee Who Should Have Been FERS Covered, But Who Was
Erroneously CSRS Covered or CSRS-Offset Covered Instead
Section 101. Elections
Subsection (101)(a). Applicability. Subtitle A applies to
employees who should have been covered by the Federal Employees
Retirement System (FERS), but who were erroneously enrolled in
the Civil Service Retirement System (CSRS) or CSRS-Offset
instead.
Subsection (101)(b). Uncorrected Error. If the retirement
coverage error has not been corrected at the time the employee
is to make an election under this section, the employee may
elect to be enrolled in FERS or to remain in (or be transferred
to) CSRS-Offset.
Subsection (101)(c). Corrected Error. If the retirement
coverage error has been corrected at the time the employee is
to make an election under this section, the employee may elect
to be enrolled in CSRS-Offset or to remain in FERS.
Subsection (101)(d). Default Rule. This subsection
establishes a default rule for employees who have not made an
election within six months after receiving the notice required
under section 201. Under this default rule, employees will be
deemed to have elected to remain in the system (other than
CSRS) they are in at the time that they were required to make
the election. This subsection also provides that employees who
should have been covered by FERS may not elect to enroll or
remain in CSRS rather than CSRS-Offset.
Subsection (101)(e). Retroactive Effect. All elections
under this section will be retroactive to the date on which the
retirement coverage error was made.
Section 102. Effect of an election to be transferred from CSRS to FERS
to correct a retirement coverage error
This section describes the disposition of contributions to
the Civil Service Retirement and Disability Fund (CSRDF),
transfers to the Federal Old Age and Survivors Insurance Trust
Fund and the Federal Disability Insurance Trust Fund, referred
to collectively as the OASDI trust funds, and makeup
contributions to the Thrift Savings Fund if an employee elects
to be transferred from CSRS to FERS under section 101(a)(1).
Subsection (102)(a). Applicability. This section applies to
employees erroneously assigned to CSRS who elect to be assigned
to FERS.
Subsection (102)(b). Disposition of Contributions to the
CSRDF. Some or all of the employee and government contributions
to the CSRDF will be transferred to the OASDI trust funds.
Subsection (102)(b)(1). Employee Contributions. Funds will
be transferred from the CSRDF to the OASDI trust funds equal to
the amount of OASDI employee taxes that should have been
withheld from the employee's pay during the period oferroneous
coverage. Any excess contributions by the employee to the CSRDF will be
forfeited.
``Excess contributions'' by the employee are defined as the
amount by which the portion of the employee's lump-sum credit
attributable to the period of erroneous coverage is greater
than the sum of the amount to be transferred from the CSRDF to
the OASDI trust funds (under subsection (b)(1)) plus the amount
that would have been deducted from the employee's pay and
deposited in the CSRDF for coverage under FERS if the employee
had been enrolled in FERS during that period.
Lump-sum credit: The term ``lump-sum credit'' is
defined in 5 U.S.C. Sec. 8331. It consists of (CSRS)
retirement deductions from the employee's basic pay,
plus amounts deposited by an employee covering earlier
service, plus interest on these deductions and
deposits.
If the amount of the lump-sum credit is less than the total
of the employee contributions that should have been made to the
CSRDF and OASDI trust funds, the amount of the shortfall is to
be made up by the employing agency out of amounts from which
the agency makes employer contributions to the CSRDF and OASDI
trust funds. To the extent that a shortfall is the result of a
lump-sum credit received by the employee (for which the
employee has not made the deposit required under 5 U.S.C.
Sec. 8334(d)(1)), the employee must repay an amount equal to
this deposit. Any shortfall required to be paid by the agency
will be reduced (but not below zero) by the amount of any such
deposit required of the employee. The CSRDF has the legal right
to collect these deposits in the same manner as any other debt
owed to the U.S. Government.
No agency make-up payment or employee repayment of a lump-
sum credit will be required which would be attributable to
amounts that should have been deducted under 5 U.S.C. Sec. 8422
during the period of erroneous coverage, except to the extent
necessary permit the transfer of funds from the CSRDF to the
OASDI trust funds described in section 102(b)(1)(A).
In order to be credited with service under chapter 84 of
Title 5 of the U.S. Code, an employee who has received a lump-
sum credit must deposit into the CSRDF for the period to which
the lump-sum credit relates an amount equal to the percentage
of the employee's basic pay that should have been deducted
under 5 U.S.C. Sec. 8422.
The Director of OPM will publish regulations that permit
section 102(b) to be applied in situations covered by other
provisions of this Act that are not directly addressed in this
paragraph.
Regardless of any restrictions set forth in 5 U.S.C.
Sec. 8424(a), employees will be permitted to make deposits to
the CSRDF for a period of erroneous coverage and to receive
service credit for the corresponding period of time. (This does
not apply, however, in the case of an employee who was
erroneously covered by FERS and remained in FERS after the
rectification provided for under this Act).
Subsection (102)(b)(2). Government Contributions. Funds
will be transferred from the CSRDF to the OASDI trust funds
equal to the amount of the OASDI employer tax that should have
been paid during the period of erroneous coverage minus any
amount that may be assessed under Section 6501 of the Internal
Revenue Code of 1986 with respect to each affected employee.
If the amount that the federal government paid to the CSRDF
during the period of erroneous coverage was less than the
amount that should have been paid to OASDI and CSRDF if the
employee had been properly assigned to FERS, the employing
agency will be required to pay the amount of the shortfall to
the OASDI trust funds. The agency will pay any such shortfall
from the same source of funds it normally uses to pay employer
contributions to the CSRDF and OASDI trust funds.
Subsection 102(c). Makeup Contributions to the Thrift
Savings Fund. This subsection provides that the employing
agency will make a lump-sum contribution to the Thrift Savings
Fund to compensate affected employees for lost opportunities to
invest in the Thrift Savings Plan (TSP). The lump-sum
contribution will make up for employee contributions forgone
because of the erroneous assignment of the employee to CSRS,
lost agency automatic 1% contributions, lost agency matching
contributions (which are to be based upon both the make-up
contribution described in subsection 102(c)(2) and any TSP
contributions the employee actually made (none of which would
have been matched by the agency at the time they were made, due
to the employee's erroneous assignment to CSRS)), and lost
earnings on the total amount that should have been contributed
to the TSP during the period of erroneous coverage, including
the employer matching contributions.
Subsection 102(c)(2). Amount Based on Average Percentage of
Pay Contributed by Employees During Period of Erroneous
Coverage. This subsection establishes rules for calculating the
amount of the contribution to make up for forgone employee
contributions. The amount contributed for each calendar year
during the period of erroneous coverage will be equal to the
average percentage contributed by full-time FERS-covered
employees who contributed to the Thrift Savings Plan that year.
If the average contribution rate is not available for a
particular year, the average for the most recent prior year
will be used. The amount of the make-up contribution for a year
plus any amounts actually contributed by the employee during
that year may not exceed any ceiling established by Title 5 of
the United States Code or the Internal Revenue Code of 1986.
(Title 5 limits employee contributions to 10% of base pay and
agency contributions to an amount equal to 5% of base pay. The
Internal Revenue Code limits employee contributions to specific
dollar amounts ($10,000 in 1999)).
Subsection 102(c)(3). Lost Earnings. Under this subsection,
lost earnings are to be calculated as if all contributions had
been timely made in each year that the employee was erroneously
enrolled in CSRS and had been allocated among each of the TSP
investment funds according to the rules prescribed by this Act.
For periods during which the employee actually made
contributions to the TSP, the make-up contributions will be
allocated in accordance with the employee's own investment fund
election during that period. If the employee did not make any
contributions to the TSP during a period, the make-up
contributions will be allocated in accordance with the average
percentage allocation of all TSP contributions among the TSP
funds in effect during that year. If an average allocation for
a year is not available, the allocation for the most recent
prior year will be used.
Subsection 102(c)(4). Make-Up Contribution to be made in a
Lump Sum. This subsection requires that the agency at which the
employee is employed as of the date of the election will
promptly pay the make-up contribution in a single lump sum. The
Federal Thrift Investment Board will publish regulations under
which employing agencies will notify the board as to the
amounts owed by the agency in make-up contributions; the Board
will calculate the earnings on those contributions; and the
Board will notify each agency of the total amount of payments
due from it.
Subsection 102(c)(5). Justices and Judges; Magistrates;
Etc. This subsection provides that Justices, Judges, and other
employees who become subject to 5 U.S.C. Sec. 8440(a), 8440(b),
8440(c), or 8440(d) are not entitled to a make-up contribution.
Subsection 102(c)(6). Regulations. Regulations necessary to
carry out this subsection will be published by the Executive
Director of the Federal Retirement Thrift Investment Board.
Section 103. Effect of an election to be transferred from CSRS-Offset
to FERS to correct a retirement coverage error
This section applies in the case of an employee who should
have been enrolled in FERS but was mistakenly enrolled in CSRS-
Offset and who elects to be covered under FERS. In such a case,
contributions to the CSRDF will be disposed of in accordance
with section 102(b), disregarding the provision relating to
transfers to the OASDI trust funds. Make-up contributions to
the Thrift Savings Fund will be made in accordance with section
102(c).
Section 104. Effect of an election to be transferred from CSRS to CSRS-
Offset to correct a retirement coverage error
This section applies in the case of an employee who should
have been enrolled in FERS but was mistakenly enrolled in CSRS
and who elects to be covered under CSRS-Offset. In such a case,
the effect of the employee's election will be the same as that
described in section 101(b)(2), except that the provisions of
section 102(b) also will apply. In applying section 102(b), the
provisions of 5 U.S.C. Sec. 8334(k), establishing employee and
agency contributions under CSRS-Offset, will be substituted for
Sec. 8422 and Sec. 8423, which, respectively, define employee
and agency contributions to FERS.
Section 105. Effect of an election to be restored (or transferred) to
CSRS-Offset after having been corrected to FERS from CSRS-
Offset (or CSRS)
Subsection 105 (a). Applicability. This section applies
when an employee who should have been enrolled in FERS but was
mistakenly enrolled in CSRS or CSRS- Offset elects to be CSRS-
Offset covered after having been corrected to FERS.
Subsection 105(b). Disposition of Contributions to the
CSRDF. The disposition of contributions to the CSRDF will be
governed by section 102(b) with the following exceptions: (1)
the agency and employee will receive credit for contributions
already paid to the OASDI trust funds; (2) the contribution
rates for the CSRS-Offset plan will be used to determine
amounts owed, rather than the FERS contribution rates; (3) the
Office of Personnel Management will publish regulations to be
used in determining the appropriate lump-sum credit for
individuals affected by this subsection; and (4), calculations
are to be based on the ``total period involved,'' defined as
the period beginning with the date of the retirement coverage
error and ending on the day before the election under this
section becomes effective.
Subsection 105(c). Disposition of Excess TSP Contributions.
Government contributions to the TSP and earnings on those
contributions will be forfeited and retained in the Thrift
Savings Fund to defray expenses of administering the TSP.
Employees will retain in their TSP accounts their individual
TSP contributions and the earnings on those contributions even
if those contributions exceed the limit applicable to employees
covered by CSRS and CSRS-Offset.
Section 106. Effect of an election to remain FERS-covered after having
been corrected to FERS from CSRS-Offset or CSRS
Subsection 106(a). Applicability. This section applies when
an employee who should have been enrolled in FERS but was
mistakenly enrolled in CSRS or CSRS-Offset elects to remain
covered by FERS after having been corrected to FERS.
Subsection 106(b). Disposition of Contributions to the
CSRDF. The same procedures will apply as in the case of an
employee who elects to be transferred from CSRS to FERS to
correct a retirement coverage error (described in section
102(b)) subject to the same condition that credit will be given
for any sums already transferred to the OASDI trust funds for
the period involved (as described in section 105(b)(2)).
Subsection 106(c). Make-up Contributions to the Thrift
Savings Fund. The same procedures will apply as in the case of
an employee who elects to be transferred from CSRS to FERS to
correct a retirement coverage error (as described in section
102(c)) except that the employing agency will receive credit
for any make-up payments already made as part of any retirement
corrections process already carried out with respect to the
affected employee.
Subtitle B--Employee Who Should Have Been FERS Covered, CSRS-Offset
Covered, or CSRS Covered, But Who Was Erroneously Social Security-Only
Covered Instead
Section 111. Elections
Subsection 111(a). Applicability. This section applies to
an employee who should have been enrolled in one of the federal
employee retirement systems--FERS, CSRS-Offset, or CSRS--but
who was erroneously covered only by Social Security.
Subsection 111(b). Uncorrected Error. If the error has not
been corrected at the time of the election, an employee who
should have been covered by FERS may elect to be covered by
FERS; an employee who should have been covered by CSRS-Offset
may elect to be covered by CSRS-Offset; and an employee who
should have been covered by CSRS may elect to be covered by
CSRS. Any such employees may, if they so choose, remain covered
only by Social Security.
Subsection 111(c). Corrected Error. No more than six months
after the enactment, the Director of OPM will submit to
Congress a proposal by which any employee with respect to whom
any of the retirement coverage errors described in subsection
111(a) had already been corrected, but under terms that were
less advantageous to the employee than those set forth in this
Act, will be given a reasonable opportunity to resolve their
retirement coverage error under terms comparable to the terms
of this Act. OPM will consult with the Executive Director of
the Federal Retirement Thrift Investment Board and the
Commissioner of Social Security in developing this proposal.
Any employee who does not make an election within the required
time will be deemed to have elected to remain covered only by
Social Security. Elections will be retroactive to the date of
the retirement coverage error.
Section 112. Effect of an election to become FERS covered to correct
the retirement coverage error
Subsection 112(a). Applicability. This section applies to
an employee who should have been FERS covered and elects to be
covered by FERS as well as Social Security.
Subsection 112(b). Make-up Contributions to the CSRDF. In
such cases, the employing agency must pay the full amount of
employee and employer contributions that would have been
required under Sec. 8422 and Sec. 8423 if the employee had been
covered by FERS during the entire period.
Subsection 112(c). Make-up Contributions to the Thrift
Savings Fund. The procedure for paying make-up contributions to
the Thrift Savings Fund will be the same as in the case of an
employee who elects to be transferred from CSRS to FERS to
correct a retirement coverage error (as described in section
102(c)).
Section 113. Effect of an election to become CSRS-Offset covered to
correct the retirement coverage error
Subsection 113(a). Applicability. This section applies to
an employee who should have been CSRS-Offset covered and elects
to be covered by CSRS-Offset as well as Social Security.
Subsection 113(b). Make-up Contributions to the CSRDF. In
such cases, the employing agency must pay the full amount of
employee and agency contributions required under subchapter III
of chapter 83 of title 5 of the U.S. Code that would have been
paid during the period of erroneous coverage if the employee
has been covered by CSRS-Offset during that time.
Subsection 113(c). Make-up Contributions to the Thrift
Savings Fund. The procedure for paying make-up contributions to
the Thrift Savings Fund will be the same as in the case of an
employee who elects to be transferred from CSRS to FERS to
correct a retirement coverage error (as described in section
102(c)), except that the make-up contributions will be limited
to 5% of pay for each year, as specified by 5 U.S.C.
Sec. 8351(b). (Employees covered by CSRS and CSRS-Offset are
not eligible for agency matching payments on their
contributions to the TSP and their contributions are limited to
5% of basic pay).
Section 114. Effect of an election to become CSRS covered to correct
the retirement coverage error
Subsection 114(a). Applicability. This section applies to
an employee who should have been CSRS covered and elects to be
covered by CSRS.
Subsection 114(b). Make-up Contributions to the CSRDF. The
employing agency must make a lump-sum payment to the CSRDF
equal to the employee and government contributions required
under 5 U.S.C. Sec. 8334 that should have been made during the
period of erroneous coverage. The agency is entitled to be
reimbursed by the employee for the amount of employee OASDI
taxes that are refundable to the employee, up to the amount of
employee contributions to the CSRDF made by the employing
agency on behalf of the employee. If the employee does not
reimburse the agency as required, the agency may collect the
amount due by reducing accrued pay, compensation, retirement
credit or any other amount due the employee from the government
by the amount owed to the government by the employee. The
agency also may collect the debt by any other method provided
by law for recovering amounts owed to the government. The head
of the agency, however, may waive this right of recovery in
whole or in part if he or she deems it to be in the public
interest to do so.
Subsection 114(c). Make-up Contributions to the Thrift
Savings Fund. The procedure for paying make-up contributions to
the Thrift Savings Fund will be thesame as in the case of an
employee who elects to be transferred from CSRS to FERS to correct a
retirement coverage error (as described in section 102(c)), except that
the make-up contributions will be limited to 5% of pay for each year as
specified by 5 U.S.C. Sec. 8351(b). (Employees covered by CSRS and
CSRS-Offset are not eligible for agency matching payments on their
contributions to the TSP and their contributions are limited to 5% of
basic pay).
Subtitle C--Employee Who Should Have Been Social Security-Only Covered,
But Who Was Erroneously FERS Covered, CSRS-Offset Covered, or CSRS
Covered Instead
Section 121. Uncorrected error: Employee who should be Social Security-
only covered, but who is erroneously FERS covered instead
Subsection 121(a). Applicability. This section applies to
an employee who should have been covered only by Social
Security but who was erroneously covered by FERS as well.
Subsection 121(b). Automatic Exclusion from FERS. An
employee who has not vested in FERS will be excluded from FERS.
Subsection 121(c). Disposition of Employee Contributions to
the CSRDF. The employee will receive a lump-sum credit from the
CSRDF (as authorized by 5 U.S.C. Sec. 8424) to which he or she
may be entitled for the period of erroneous coverage.
Subsection 121(d). Disposition of TSP Contributions.
Government contributions to the TSP on behalf of the employee
are to be forfeited. Employees may retain their own
contributions to the TSP and the earnings on those
contributions in their TSP account.
Section 122. Uncorrected error. Employee who should be Social Security-
only covered, but who is erroneously CSRS-Offset covered
instead
Subsection 122(a). Applicability. This section applies to
an employee who should have been covered only by Social
Security but who was erroneously covered by CSRS-Offset
instead.
Subsection 122(b). Automatic Exclusion from CSRS-Offset. An
employee who has not vested in CSRS-Offset will be excluded
from CSRS-Offset.
Subsection 122(c). Disposition of Employee Contributions to
the CSRDF. The employee will receive a lump-sum credit from the
CSRDF (as authorized by 5 U.S.C. Sec. 8342) to which he or she
may be entitled for the period of erroneous coverage.
Subsection 122(d). Disposition of Employee TSP
Contributions. Employees may retain their own contributions to
the TSP and the earnings on those contributions in their TSP
account.
Section 123. Uncorrected error. Employee who should be Social Security-
only covered, but who is erroneously CSRS covered instead
Subsection 123(a). Applicability. This section applies to
an employee who should have been covered only by Social
Security but who was erroneously covered by CSRS instead.
Subsection 123(b). Automatic Exclusion from CSRS. An
employee who has not vested in CSRS will be excluded from CSRS.
Subsection 123(c). Disposition of Contributions to the
CSRDF. Employee and government contributions to the CSRDF will
be disposed of in accordance with section 102(b), (governing
the disposition of contributions in the case of an employee who
elects to transfer from CSRS to FERS to correct a retirement
coverage error), except that paragraphs (1)(B)(ii)(II) and
(2)(B)(ii)(II), (governing the disposition of excess employee
contributions and shortfalls in government contributions to the
CSRDF, respectively) will be disregarded.
Subsection 123(d). Disposition of Employee TSP
Contributions. Employees may retain their own contributions to
the TSP and the earnings on those contributions in their TSP
account.
Section 124. Corrected error. Situations under sections 121 through 123
No more than six months after enactment, the Director of
OPM will submit to Congress a proposal by which any employee
with respect to whom any of the retirement coverage errors
described in sections 121, 122, or 123 had been corrected,
under terms that were less advantageous to the employee than
those set forth in this Act, will be given a reasonable
opportunity to resolve their retirement coverage error under
comparable terms. OPM will consult with the Executive Director
of the Federal Retirement Thrift Investment Board and the
Commissioner of Social Security in developing this proposal.
Section 125. Vested employees excepted from automatic exclusion
Subsection 125(a). Employees who have vested in FERS, CSRS-
Offset, or CSRS as of the date on which the notice of a
retirement coverage error is given will not be excluded from
those systems.
Subsection 125(b). Vesting. An employee has vested after
completing at least 5 years of civilian service creditable
under 5 U.S.C. Sec. 8332 (defining creditable service under
CSRS) or Sec. 8411 (defining creditable service under FERS).
Subsection 125(c). Elections. An employee who was
erroneously covered by FERS and who has vested in that program
may elect to remain covered by FERS or to be covered by Social
Security only. An employee who was erroneously covered by CSRS-
Offset or CSRS and who has vested in one of these programs may
elect to remain (or become) CSRS-Offset covered or to be
covered only by Social Security.
Subsection 125(d). Effect of an Election To Be Transferred
from CSRS to CSRS Offset. The effect of an election to become
CSRS-Offset covered after having been covered by CSRS will be
the same as described in section 104, (governing the effect of
an election to be transferred from CSRS to CSRS-Offset to
correct a retirement coverage error).
Subsection 125(e). Default Rule. If the employee does not
make an election in the required six-month period, the employee
will be deemed to have elected to remain FERS covered or to
remain (or become) CSRS-Offset covered, as applicable.
Subsection 125(f). Retroactive Effect. Elections, including
elections by default, will be retroactive to the date of the
retirement coverage error.
Subsection 125(g). Special Rule in Case of Disability. If
on the date that an employee is notified of a retirement
coverage error, the employee is receiving disability payments
under 5 U.S.C. chapter 83 or 84 or compensation for illness or
injury under subchapter I of chapter 81, the employee will not
be excluded from the retirement program if they are vested in
that program on the date that their annuity or compensation
terminates.
Subsection 125(h). Notification. The notices required of
the Office of Personnel Management under section 201 of this
Act will include additional information pertaining to the
situations covered by this subtitle, especially as they relate
to the consequences of being vested or not being vested.
Subtitle D--Employee Who Should Have Been CSRS Covered or CSRS-Offset
Covered, but Who Was Erroneously FERS Covered Instead
Section 131. Elections
Subsection 131(a). Applicability. This section applies to
employees who should have been enrolled in either CSRS or CSRS-
Offset but who were erroneously placed in FERS.
Subsection 131(b). Uncorrected Error. If the error has not
been corrected by the date of enactment, the employee may
choose to be covered by the CSRS or CSRS-Offset systems, as
appropriate, or to remain in FERS.
Subsection 131(c). Corrected Error. If the error has
already been corrected by the date of enactment, the employee
may elect to become FERS covered or to remain in CSRS or CSRS-
Offset.
Subsection 131(d). Default Rule. If the employee does not
make an election within six months after notification, the
employee will be deemed to have elected to remain in CSRS or
CSRS-Offset, as applicable.
Subsection 131(e). Retroactive Effect. Elections will be
retroactive to the date of the retirement coverage error.
Section 132. Effect of an election to be transferred from FERS to CSRS
to correct a retirement coverage error
Subsection 132(a). Applicability. This section applies when
an employee who should have been covered by CSRS elects to be
transferred from FERS to CSRS to correct a retirement coverage
error.
Subsection 132(b). Make-up Contributions to the CSRDF. The
employing agency will make a lump-sum payment to the CSRDF
equal to the amount by which the difference between the
employee CSRS contributions required and the employee FERS
contributions actually made exceeds the difference between the
amount of the agency's actual contributions under FERS and the
amount of agency contributions that should have been made
during the period of erroneous coverage.
The agency is entitled to be reimbursed by the employee for
the amount of employee OASDI taxes that are refundable to the
employee, up to the amount of the lump-sum payment by the
agency to the CSRDF. If the employee does not reimburse the
agency as required, the agency may collect the amount due by
reducing accrued pay, compensation, retirement credit or any
other amount due the employee from the government by the amount
owed to the government by the employee. The agency also may
collect the debt by any other method provided by law for
recovering amounts owed to the government. The head of the
agency, however, may waive this right of recovery in whole or
in part if he or she deems it to be in the public interest to
do so. Any amount recovered by the employing agency will be
credited to the account from which it was originally paid.
Subsection 132(c). Disposition Excess TSP Contributions.
Government contributions to the TSP and earnings on those
contributions will be forfeited and retained in the Thrift
Savings Fund to defray expenses of administering the TSP.
Employees may retain in their TSP accounts their individual TSP
contributions andthe earnings on those contributions, even if
those contributions exceed the limit applicable to employees covered by
CSRS and CSRS-Offset.
Section 133. Effect of an election to be transferred from FERS to CSRS-
Offset to correct a retirement coverage error.
Subsection 133(a). Applicability. This section applies when
an employee who should have been covered by CSRS-Offset elects
to be transferred from FERS to CSRS-Offset to correct a
retirement coverage error.
Subsection 133(b). Effect of Election. The effect of this
election is substantially the same as that described in section
105, (governing an election to transfer to CSRS-Offset after
having been corrected to FERS from CSRS-Offset or CSRS).
Section 134. Effect of an election to be restored to FERS after having
been corrected to CSRS
Subsection 134(a). Applicability. This section applies when
an employee who should have been covered by CSRS, but was
erroneously placed in FERS, elects to be restored to FERS after
having been previously corrected to CSRS.
Subsection 134(b). Effect of Election. The effect of this
election is substantially the same as that described in section
102, (governing an election to be transferred from CSRS to FERS
to correct a retirement coverage error).
Section 135. Effect of an election to be restored to FERS after having
been corrected to CSRS-Offset
Subsection 135(a). Applicability. This section applies when
an employee who should have been in the CSRS-Offset system, but
was erroneously placed in FERS, elects to be restored to FERS
after having been previously corrected to CSRS-Offset.
Subsection 135(b). Effect of Election. The effect of this
election is substantially the same as that described in section
103, (governing an election to be transferred from CSRS-Offset
to FERS to correct a retirement coverage error).
Section 136. Disqualification of certain individuals to whom same
election was previously available
An employee who previously had an opportunity to make an
election under 5 C.F.R. Sec. 846.204 (1997) will not be
permitted to make an election under this subtitle.
Subtitle E--Employee Who Should Have Been CSRS-Offset Covered, but Who
Was Erroneously CSRS Covered Instead
Section 141. Automatic transfer to CSRS-Offset
Subsection 141(a). Applicability. This section applies when
an employee who should have been in the CSRS-Offset was placed
in CSRS instead.
Subsection 141(b). Uncorrected Error. If the error has not
been corrected, the employee will be transferred to CSRS-Offset
retroactive to the date of the retirement coverage error.
Subsection 141(c). Corrected Error. If the error has
already been corrected, the correction will be made retroactive
to the date of the retirement coverage error.
Section 142. Effect of transfer
The Office of Personnel Management will issue regulations
such that the effect of a transfer under section 141 will be
consistent with section 104, (governing the effect of an
election to be transferred from CSRS to CSRS-Offset to correct
a retirement coverage error).
Subtitle F--Employee Who Should Have Been CSRS Covered, But Who Was
Erroneously CSRS-Offset Covered Instead
Section 151. Elections
Subsection 151(a). Applicability. This section applies when an employee
who should have been covered by CSRS was erroneously placed in
CSRS-Offset instead.
Subsection 151(b). Uncorrected Error. If the error has not
been corrected at the time of the election under this section,
the employee may choose to transfer to CSRS or to remain
covered by CSRS-Offset.
Subsection 151(c). Corrected Error. If at the time of an
election under this section, the error has already been
corrected, the employee may elect to transfer to CSRS-Offset or
to remain covered by CSRS.
Subsection 151(d). Default Rule. If the employee has not
made an election by the end of the six-month period following
notification of the retirement coverage error, the employee
will be deemed to have elected to remain in CSRS-Offset or
CSRS, as applicable.
Subsection 151(e). Retroactive Effect. An election under
this section, including an election by default, will be
effective retroactively to the date of the retirement coverage
error to which the election relates.
Section 152. Effect of an election to be transferred from CSRS-Offset
to CSRS to correct a retirement coverage error
Section 152(a). Applicability. This section applies when an
employee who should have been covered by CSRS elects to become
(or to remain) covered by CSRS.
Subsection 152(b). Make-up Contributions to the CSRDF. The
employing agency will pay to the CSRDF a lump-sum equal to the
amount by which the amount that should have been deducted from
the employee's pay during the period of erroneous coverage (if
the individual had been covered by CSRS) exceeds the amount
that was actually deducted from the employee's pay.
The agency is entitled to be reimbursed for the amount of
employee OASDI taxes refundable to the employee up to the
amount of the lump-sum payment made by the agency to the CSRDF.
If the employee does not reimburse the agency as required, the
agency may collect the amount due by reducing accrued pay,
compensation, retirement credit or any other amount due the
employee from the government by the amount owed to the
government by the employee. The agency also may collect the
debt by any other method provided by law for recovering amounts
owed to the government. The head of the agency, however, may
waive this right of recovery in whole or in part if he or she
deems it to be in the public interest to do so. Any amount
recovered by the employing agency will be credited to the
account from which it was originally paid.
When applying sections 8334(d)(1) and 8339(i), which
require deposits to the CSRDF by employees who have received
refunds and who wish to receive service credit for the periods
to which the refunds pertain, no employee who has received a
refund for a period when the employee was erroneously covered
by CSRS-Offset will be required to deposit an amount in excess
of the refund actually received for the period, plus interest.
Section 153. Effect of an election to be restored to CSRS-Offset after
having been corrected to CSRS
Section 153(a). Applicability. This section applies in the
case of an employee who should have been covered by CSRS, but
who was erroneously covered by CSRS-Offset, and who elects to
transfer to CSRS-Offset.
Section 153(b). Disposition of Contributions to the CSRDF.
The effect of this election is substantially the same as that
described in section 102(b), (governing an election to be
transferred from CSRS to FERS to correct a retirement coverage
error), except that when applying section 102(b), the
provisions of 5 U.S.C. Sec. 8334, (employee and agency
contributions under CSRS-Offset) will be substituted for
references to Sec. 8422 and Sec. 8423, which, respectively,
define employee and agency contributions to FERS.
Subtitle G--Additional Provisions Relating to Government Agencies
Section 161. Repayment required in certain situations
Subsection 161(a). In General. In order to be eligible to
make an election under this Act, an employee who has received a
payment from the government as a result of a court order or
settlement agreement relating to a retirement coverage error
must repay any part of that amount that is not waived by OPM.
Section 162. Equitable sharing of amounts payable from the government
if more than one agency is involved
When an employee has been employed by more than one agency
since the date of the retirement coverage error, amounts
required to be paid or received by the current employing agency
(other than lost earnings on TSP accounts) under this Act are
to be apportioned equitably among such agencies in accordance
with regulations to be published by OPM.
Section 163. Provisions relating to the original responsible agency
Subsection 163(a). Obligations of the Original Responsible
Agency. The agency originally responsible for the retirement
coverage error will be required to pay (or reimburse) employees
for reasonable expenses they incur for financial or legal
advice in connection with an election under this Act. The
agency originally responsible to the retirement coverage error
will be obligated to pay (or to reimburse any other agencies
that pay) any amounts to the Thrift Savings Fund that replace
lost earnings resulting from the error.
The agency originally responsible for the retirement
coverage error is the agency determined by OPM to have made the
original retirement coverage error or, when the error is
attributable to an erroneous OPM regulation, OPM itself. If the
original responsible agency no longer exists, its successor, as
identified by OPM, will be the original responsible agency. If
there is no successor agency, payments required from or to the
responsible agency are to be paid from or to the CSRDF. When
OPM is the original responsible agency because the error was
the result of an erroneous regulation, any amounts payable from
OPM under this section are to be paid from the CSRDF.
TITLE II--GENERAL PROVISIONS
Section 201. Identification and notification requirements
Section 201(a). In General. The Office of Personnel
Management will publish regulations prescribing the procedures
under which individuals affected by a retirement coverage error
described in this Act will be notified of their rights under
this Act. The notice will include all information necessary to
allow the individual to make an informed decision about the
election they are permitted to make under the Act. All errors
existing on the effective date of the regulations mandated by
this Act are to be corrected by December 31, 2001.
Section 202. Individual appeal rights
Section 202(a). In General. An individual aggrieved by a
final determination under this Act will be entitled to appeal
that determination to the Merit Systems Protection Board under
section 7701 of title 5 of the U.S. Code.
Section 202(b). Notification of Appeals. The Office of
Personnel Management will publish regulations that establish
procedures under which individuals can appeal to that Office
with respect to failure to receive timely notice of the
provisions of this Act as required by Section 201.
Section 203. Information to be furnished by government agencies to
authorities administering this Act
Agencies are required to provide the Director of the Office
of Personnel Management, the Commissioner of Social Security,
and the Executive Director of the Federal Retirement Thrift
Investment Board any information they need to carry out their
responsibilities under this Act.
Section 204. Social Security records
The Commissioner of Social Security will be required to
modify the wage records of employees affected by retirement
coverage errors described in this Act to the extent necessary
to carry out the purposes of this Act or the Social Security
Act.
Section 205. Conforming amendments respecting social security coverage
and OASDI taxes
Section 205(a). Social Security Coverage. This section
amends section 210(a)(5)(H) of the Social Security Act and
Section 3121(b)(5)(H) of the Internal Revenue Code of 1986 to
permit Social Security payments to CSRS-eligible individuals
who elect coverage under FERS, CSRS-Offset, or to be covered
only by Social Security. (Current law excludes federal
employees eligible for CSRS from coverage under Social
Security).
Section 206. Regulations
Subsection 206(a). In General. The Director of the Office
of Personnel Management, the Executive Director of the Federal
Retirement Thrift Investment Board, the Commissioner of Social
Security, and the Secretary of the Treasury each will publish
regulations necessary to implement this Act.
Subsection 206(b). Matters to be Included. The regulations
issued by the Director of OPM will, at a minimum, include 1)
procedures for applying the provisions of this Act to the
extent practicable to former employees, employee annuitants,
and survivor annuitants, 2) procedures by which former spouses
affected by the provision of this Act will be notified of its
provisions, 3) the procedures by which any determinations under
this Act not otherwise addressed herein will be made in
accordance with the requirements of the Act, and 4) procedures
by which any amounts that must be paid by an individual to the
Government in order for him or her to make an election under
this Act, which have not otherwise been collected, may be
recouped by the Government through an actuarial reduction in
the annuity or survivor annuity payable under the applicable
federal retirement program.
Section 206(c). Definitions. An ``annuitant'' is a person
defined in section 8331(9) or section 8401(2) of title 5 U.S.C.
A former employee is any person who satisfies the service
requirements for title to a deferred annuity under chapter 83
or 84 of title 5 U.S.C. but who has not reached the minimum age
required to claim such annuity or who has not filed a claim.
Section 206(d). Coordination Rule. The Director of the
Office of Personnel Management is required to consult with the
Administrative Office of the United States Courts, the Clerk of
the House of Representatives, the Sergeant at Arms and
Doorkeeper of the Senate, and other appropriate officers and
authorities when prescribing regulations to carry out this Act.
Section 207. All elections to be approved by the Office of Personnel
Management
To ensure compliance with this Act, the Office of Personnel
Management must approve in writing all elections (other than
default elections) under the Act.
Section 208. Additional transfers to the OASDI trust funds in certain
cases
The Commissioner of Social Security is required to notify
the Secretary of the Treasury if the payments of OASDI taxes
under this Act are not credited to the OASDI trust funds. When
so notified, the Secretary of the Treasury must transfer
anamount equal to the shortfall reported by the Commissioner from the
general fund of the Treasury to the OASDI trust funds.
Section 209. Technical and conforming amendments
This section makes technical and conforming amendments to
sections 8432, 8437, and 8348 of title 5 of the United States
Code.
TITLE III--OTHER PROVISIONS
Section 301. Provisions to permit continued conformity of other Federal
retirement systems
Section 301(a) Foreign Service. The Secretary of State is
required to publish regulations to apply this Act to
participants, annuitants, and survivors covered by the Foreign
Service Retirement and Disability System or the Foreign Service
Pension System. Grievances will be appealed to the Foreign
Service Grievance Board. The Secretary will fulfill the
functions assigned to the Director of OPM in the other titles
of this Act.
Section 301(b) Central Intelligence Agency. This section
requires that elections like those described in this Act be
made available to individuals covered by the retirement system
of the Central Intelligence Agency.
Section 302. Provisions to prevent reductions in force and any unfunded
liability in the Civil Service Retirement and Disability Fund
Section 302(a). Provisions to Prevent Reductions in Force.
Agencies are prohibited from conducting reductions in force
because of a shortfall of funds caused by payments required
under this Act. Agencies that seek to lower personnel costs as
a means of financing payments required under this Act in whole
or in part are directed to achieve these savings through
attrition and limitations on hiring.
Section 302(b). Provisions to Prevent Unfunded Liability.
Any additional unfunded liability in the CSRDF created by
payments required under this Act will be amortized over a 30-
year period paid by transfers of funds from general revenues,
as authorized by 5 U.S.C. Sec. 8348(f), (except in cases where
the increase in unfunded liability is to be paid off by
transfers of funds from the U.S. Postal Service or the Panama
Canal Commission).
Section 303. Individual right of action preserved for amounts not
otherwise provided for under this act
This section preserves any right of action that an
individual may have under the Federal Tort Claims Act for
claims that are not provided for in this Act.
TITLE IV--TAX PROVISIONS
Section 401. Tax provisions
Section 401(a). Plan Qualification. No retirement plan of
the United States or its agencies will fail to be treated as a
qualified plan under the Internal Revenue Code of 1986 because
of an action required by this Act. For example, the Act permits
an employing agency to make up contributions on behalf of an
employee who was entitled to such contributions in prior years
without violating the applicable overall contribution and
benefit limitations (section 415 of the I.R.C.) for the year
during which the contribution is made.
Section 401(b). Transfers. Neither government contributions
to funds or accounts nor transfers between funds made as a
result of this Act will be counted as income under the Internal
Revenue Code.
VI. Compliance With Rule XIII
Pursuant to rule XIII, clause 3(c)(1) of the Rules of the
House of Representatives, under the authority of rule X, clause
2(b)(1) and clause 3(e), the results and findings from
Committee oversight activities are incorporated in the bill and
this report.
VII. Budget Analysis and Projections
The budget analysis and projections required by section
308(a) of the Congressional Budget Act of 1974 are contained in
the estimate of the Congressional Budget Office.
VIII. Cost Estimate of the Congressional Budget Office
U.S. Congress,
Congressional Budget Office,
Washington, DC, February 19, 1999.
Hon. Dan Burton,
Chairman, Committee on Government Reform,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 416, the Federal
Retirement Coverage Corrections Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact if Eric Rollins.
Sincerely,
Dan L. Crippen.
Enclosure.
H.R. 416--Federal Retirement Coverage Corrections Act
Summary: H.R. 416 would alter the procedures for correcting
situations where federal employees have been mistakenly placed
in the wrong retirement system. Many of these retirement
coverage errors occurred between 1984, when the Civil Service
Retirement System (CSRS) was closed to new entrants, and 1987,
when the Federal Employees' Retirement System (FERS) was
created.
CBO estimates that federal agencies would bear
discretionary costs totaling $346 million over the 2000-2004
period, primarily because the bill would increase the size of
makeup contributions to the Thrift Savings Plan (TSP). The bill
would also decrease direct spending by $113 million; this drop
in direct spending largely reflects makeup contributions to the
Social Security trust funds, which are off-budget. The bill
would not have a significant impact on federal retirement
benefits during the next several years because the affected
employees are generally still in the middle of their careers.
Because the bill would affect direct spending and receipts,
pay-as-you-go procedures would apply.
The bill would require the District of Columbia and
Gallaudet University to correct instances where employees have
been mistakenly enrolled in the wrong retirement system. This
requirement represents both an intergovernmental and a private-
sector mandate as defined by the Unfunded Mandates Reform Act
of 1995 (UMRA). However, CBO estimates that the cost of these
mandates would be minimal.
Estimated cost to the federal government: The estimated
budgetary impact of H.R. 416 is shown in the following table.
TABLE 1. ESTIMATED BUDGETARY EFFECTS OF H.R. 416
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
-------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Makeup contributions to TSP..... 23 68 66 73 45 31 35 39 -6 -7
Makeup payments to Social \(1)\ 1 1 1 1 1 1 1 -2 -2
Security.......................
Makeup payments to the CSRDF.... 6 20 17 18 13 11 11 12 -8 -9
Agency retirement contributions. \(1)\ \(1)\ \(1)\ -1 -1 -2 -2 -2 -2 -3
Employer TSP contributions...... \(1)\ \(1)\ -1 -1 -2 -2 -2 -2 -2 -3
Employer Social Security \(1)\ \(1)\ \(1)\ 1 1 1 1 1 1 1
contributions..................
-------------------------------------------------------------------------------
Total..................... 29 88 83 90 56 40 45 50 -19 -23
CHANGES IN DIRECT SPENDING
On-Budget:
Makeup payments to the CSRDF -9 -30 -25 -27 -19 -16 -17 -19 12 13
Agency retirement \(1)\ \(1)\ 1 2 2 2 2 3 3 4
contributions..............
Transfers from CSRDF to 10 31 27 28 21 18 19 21 -12 -13
Social Security............
-------------------------------------------------------------------------------
Subtotal.................. 1 2 2 3 4 4 5 5 3 4
===============================================================================
Off-Budget:
Makeup payments to Social \(1)\ -2 -1 -1 -1 -1 -1 -1 3 3
Security...................
Employer Social Security \(1)\ \(1)\ -1 -1 -1 -1 -2 -2 -2 -1
contributions..............
Transfers from CSRDF to -10 -31 -27 -28 -21 -18 -19 -21 12 13
Social Security............
-------------------------------------------------------------------------------
Subtotal-................. -10 -33 -28 -30 -23 -20 -22 -24 13 15
===============================================================================
Total..................... -9 -31 -26 -27 -19 -16 -17 -19 16 19
CHANGES IN REVENUES
On-Budget:
Employee retirement \(1)\ \(1)\ -1 -1 -1 -1 -2 -2 -2 -1
contributions..............
Off-Budget:
Employee Social Security \(1)\ \(1)\ 1 1 1 1 2 2 2 1
taxes......................
-------------------------------------------------------------------------------
Total..................... \(1)\ \(1)\ \(1)\ \(1)\ \(1)\ \(1)\ \(1)\ \(1)\ \(1)\ \(1)\
TOTAL COST OF H.R. 416
Direct spending and revenues.... -9 -31 -26 -27 -19 -16 -18 -19 16 19
All spending and revenues....... 20 57 56 63 37 24 27 30 -4 -4
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.
Note: Components may not sum to totals because of rounding.
The mandatory costs of this legislation would fall within
budget functions 600 (Income Security), 650 (Social Security),
and 950 (Undistributed Offsetting Receipts). Additional costs
to employing agencies would be discretionary and would be
funded through appropriations throughout the budget.
Basis of estimate: H.R. 416 lays out procedures for
correcting a wide variety of retirement coverage errors. CBO
estimates that the bill would impose discretionary costs on
agencies totaling $346 million over the 2000-2004 period. In
addition, the bill would increase on-budget direct spending by
$12 million over the same period. Off-budget direct spending
would decrease by $124 million, for a net decrease in direct
spending of $112 million. H.R. 416 would have little impact on
net revenues; on-budget revenues would decrease by $3 million,
while off-budget revenues would increase by $3 million. The
estimate assumes that the Postal Service would increase postal
rates to offset its own costs related to the bill. The estimate
also assumes that the bill is enacted by October 1, 1999.
Background
There are two main retirement programs for full-time
regular federal employees. Most full-time employees hired
before 1984 are in Civil Service Retirement System (CSRS), a
defined benefit plan that does not include Social Security.
Those hired after 1983 are generally covered by the Federal
Employees' Retirement System (FERS), which features Social
Security, a more limited defined benefit, and the defined
contribution Thrift Savings Plan (TSP) with government matching
contributions. Employees who return to government service after
1987 and have five years of prior service under CSRS may be
covered by a hybird plan known as CSRS Offset that features a
combination of CSRS and Social Security benefits.
FERS employees may contribute up to 10 percent of their pay
to the TSP. They receive an automatic contribution from their
employing agency equal to 1 percent of their pay and may also
receive an additional 4 percent in matching contributions. CSRS
and CSRS Offset employees may also participate in the TSP, but
they may only contribute up to 5 percent of their pay and do
not receive any government contributions.
Assumptions about retirement coverage errors
CBO estimated the number of retirement coverage errors that
have been made based on discussions with personnel officials in
a number of large government agencies, including the Postal
Service and the Department of Defense, Veterans Affairs, and
Agriculture. These agencies comprise approximately 70 percent
of the federal civilian workforce. On the basis of these
discussions, CBO estimates that approximately 18,000 coverage
errors have occurred throughout the government, of which
approximately 11,000 have already been corrected. The two most
common types of coverage errors to involve employees who should
be in FERS but were accidentally put in CSRS, and employees
with prior service who returned to government service and were
misplaced in either FERS or CSRS Offset.
H.R. 416 would also affect the speed with which agencies
identify and correct retirement coverage errors. CBO assumed
that, under current law, agencies would correct coverage errors
at a constant annual rate. H.R. 416 would direct agencies to
identify any retirement coverage errors and correct them by
December 31, 2001, but would not impose any penalty on agencies
that miss this deadline. CBO assumed that agencies would
correct their errors at a 20 percent faster annual rate than
under current law, but that some errors would remain
undiscovered until 2009. Agencies would also stop correcting
errors for the first six months of 2000 pending the issuance of
final regulations to implement H.R. 416.
Under current law, coverage errors are usually corrected by
converting the employee to the proper retirement system,
retroactive to original date of error. However, some employees
who were accidentally placed in FERS are able to remain in FERS
by making a retroactive election of FERS coverage. H.R. 416
would allow most employees affected by coverage errors to
choose whether they would like to be placed in the proper
retirement system or make their current incorrect coverage
permanent. All elections would be irrevocable, and employees
who did not make an election would retain their current
coverage. Coverage errors lasting less than a year would not be
covered by the bill. CBO assumed that 80 percent of the
employees whose errors have not yet been corrected would choose
to be placed in the proper retirement system.
Most of the employees whose coverage errors have already
been corrected would also be given the option of returning to
the retirement system in which they were mistakenly placed.
However, employees who were mistakenly placed in CSRS and have
already been placed in FERS would be able to elect only CSRS
Offset coverage. CBO assumed that 80 percent of these employees
would elect to remain in their current coverage.
Effects on discretionary spending
Makeup Contributions to TSP.--Employees who are incorrectly
covered by CSRS rather than FERS are unable to participate
fully in the TSP. Under current law, when an individual's
coverage is corrected to FERS, the employing agency makes a
lump-sum deposit into his TSP account equal to the government
contributions and related earnings that would have been made to
the employee's previous TSP contributions under FERS rules. If
the employee did not have a TSP account, only a deposit for the
automatic 1-percent contribution is made. Earnings are
calculated using the individual's own fund allocation decisions
(if he had a TSP account) or the G Fund rate (otherwise).
Employees may provide makeup contributions to their TSP
accounts out of future pay. These makeup contributions receive
agency matching contributions (up to the 5-percent FERS
maximum) and related earnings as if the contributions had been
made at the proper time. However, back earnings are paid only
on the agency's matching funds, not the employee's makeup
contributions.
H.R. 416 would change the way that makeup TSP contributions
are calculated, and would apply to employees mistakenly covered
by CSRS or CSRS Offset whose coverage is changed to FERS.
Employees whose coverage was corrected to FERS prior to the
bill's enactment would also be eligible. Under the bill,
agencies would make a lump-sum payment to TSP representing past
employee contributions as well as the automatic 1-percent
agency contributions and agency matching contributions. The
amount representing employee contributions would be calculated
using the average contribution rate for FERS employees who
participated in TSP, and would be paid whether or not the
employee already has a TSP account (subject to the 10-percent
annual limit on FERS contributions and the Internal Revenue
Service's annual dollar limit on contributions to tax-deferred
savings plans). Agencies would also pay past earnings on all
three amounts. These earnings would be calculated using the
employee's own TSP fund allocation choices. If the employee did
not have a TSP account, a composite rate representing the
average allocation of all FERS employees contributing to TSP
would be used.
Based on historical data provided by the Federal Retirement
Thrift Investment Board, CBO estimates that these provisions
would increase the average TSP makeup payment by $85,000 in
2000. Employees whose coverage errors were corrected to FERS in
the past would receive smaller payments of about $35,000. These
amounts would be higher in later years due to additional
foregone returns and contributions. CBO estimates that the
additional cost of TSP makeup contributions would be $275
million over the 2000-2004 period.
Makeup Payments to Social Security.--Agencies are currently
responsible for paying makeup Social Security payroll taxes
covering the last 3 years, 3 months, and 15 days foremployees
whose coverage is changed from CSRS to FERS or CSRS Offset. CBO
estimates that these makeup payments would increase by $4 million
during the 2000-2004 period. This rise primarily reflects the impact
that the bill would have on speeding up the correction of coverage
errors.
Makeup Payments to the Civil Service Retirement and
Disability Fund (CSRDF).--Under H.R. 416, any necessary
adjustments to past agency retirement contributions to the
CSRDF would be completely retroactive, as under current law.
Agencies would also have to reimburse the CSRDF for certain
transfers from the CSRDF to the Social Security trust funds. As
noted earlier, agencies are responsible for makeup Social
Security payroll taxes covering the last 3 years, 3 months, and
15 days. If an employee was erroneously covered for a longer
period of time, H.R. 416 would require the CSRDF to transfer to
the Social Security trust funds an amount equal to the agency's
payroll taxes for that additional period that should have gone
to Social Security but went instead to the CSRDF. The agency
would then be required to reimburse the CSRDF for the makeup
employer taxes transferred to Social Security. CBO estimates
that agency makeup payments to the CSRDF would increase by $74
million between 2000 and 2004 under the bill.
Agency Retirement Contributions.--The amount that agencies
contribute towards their employees' retirement would decrease
slightly because, relative to current law, the bill would shift
some employees out of FERS into CSRS Offset, which requires
lower agency retirement contributions.
Employer TSP Contributions.--The additional employees who
would shift out of FERS into CSRS Offset under H.R. 416 would
no longer be eligible for the automatic and matching TSP
contributions available under FERS, lowering agency spending on
TSP contributions by $4 million over the 2000-2004 period.
Employer Social Security Contributions.--Employer
contributions to Social Security would increase by $2 million
between 2000 and 2004 due to the speeding up of retirement
corrections. These contributions would not be affected by the
decision of some employees to switch from FERS to CSRS Offset
since both types of coverage include Social Security.
Effects on direct spending (on-budget)
Makeup Payment of Retirement Contributions.--The increase
in agency makeup payments to the CSRDF would be reflected in
the budget both as additional agency outlays and as offsetting
receipts to the CSRDF. As a result, receipts to the trust fund
would increase by $110 million between 2000 and 2004. The
increase in receipts is larger than the increase in agency
makeup payments because the receipts figure includes payments
by the Postal Service.
Agency Retirement Contributions.--The increase in agency
retirement contributions under the bill would decrease CSRDF
receipts by $5 million over the 2000-2004 period. The decrease
in receipts is larger than the decrease in agency retirement
contributions because the receipts figure includes payments by
the Postal Service.
Transfers from the Civil Service Trust Fund to Social
Security.--Under H.R. 416, the CSRDF would make payments to the
Social Security trust funds for certain back payroll taxes.
CSRDF would be required to transfer amounts equal to any
employee payroll taxes and employer payroll taxes beyond the
current statute of limitations of 3 years, 3 months, and 15
days that should have gone to Social Security but instead went
to the CSRDF. As noted above, agencies would reimburse the
CSRDF for transfers of employer payroll taxes. CBO estimates
that transfers from the CSRDF to the Social Security trust
funds would total $117 million over the 2000-2004 period.
Although these transfers are intragovernmental, the payments
would be on-budget, and the receipt of these funds by Social
Security would be off-budget.
Effects on direct spending (off-budget)
H.R. 416 would affect offsetting receipts to the Social
Security trust funds in three ways. First, agency makeup
payments would be slightly accelerated, increasing receipts by
$5 million between 2000 and 2004. Second, receipts from
employer Social Security contributions would rise by $3 million
during this period. In both of these instances, the increase in
receipts is larger than the increase in discretionary spending
because the receipts figure includes payments by the Postal
Service. Finally, transfers from the Civil Service trust fund
for back taxes would increase receipts by $117 million during
the 2000-2004 period.
Effects on revenues
Employee Retirement Contributions.--Because of the speeding
up of retirement corrections, employee retirement contributions
would decrease by $3 million over the 2000-2004 period.
Employees would be moved more rapidly out of CSRS, which
requires 7 percent employee contributions, and into CSRS Offset
or FERS, which both require 0.8 percent employee contributions.
Employee Social Security Taxes.--By moving from CSRS to
CSRS Offset or FERS, employees would also become covered by
Social Security. The speeding up of retirementcorrections thus
would increase receipts of employee Social Security taxes by $3 million
between 1999 and 2003.
Pay-as-you-go considerations: The provisions of H.R. 416
would affect on-budget direct spending and revenues and
therefore be subject to pay-as-you-go procedures. The pay-as-
you-go procedures cover only the current year, budget year, and
the succeeding four years. The pay-as-you-go effects of the
bill are shown in Table 2.
TABLE 2. SUMMARY OF PAY-AS-YOU-GO EFFECTS
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
---------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
----------------------------------------------------------------------------------------------------------------
Change in outlays......................... 1 2 2 3 4 4 5 5 3 4
Change in receipts........................ 0 0 -1 -1 -1 -1 -2 -2 -2 -1
----------------------------------------------------------------------------------------------------------------
Intergovernmental and private-sector impact: H.R. 416 would
require the government of the District of Columbia and
Gallaudet University to correct errors associated with the
incorrect enrollment of employees in certain retirement plans.
This requirement is both an intergovernmental and a private-
sector mandate as defined by UMRA. However, costs associated
with those corrections would be minimal, and only a small
number of employees of the District of Columbia and Gallaudet
University have been affected by the errors addressed by the
bill. Consequently, CBO estimates that the total cost of the
mandates would be minimal.
Comparison with other estimates: An identical version of
H.R. 416 was reported by the House Committee on Ways and Means
on February 11, 1999.
H.R. 416 is similar to H.R. 3249, which was approved by the
House of Representatives in the 105th Congress. The only major
difference between the two bills is that H.R. 3249 also
included a provision authorizing an open season for federal
employees covered by the Foreign Service Retirement and
Disability System to switch into the newer Foreign Service
Pension System.
CBO estimated that H.R. 3249 would impose discretionary
costs on agencies totaling $443 million and reduce direct
spending by $135 million over the 1999-2003 period. The main
reason that the discretionary impact of H.R. 416 is lower than
that for H.R. 3249 is that CBO lowered its estimate of the
additional TSP makeup contributions that would be paid to
employees whose coverage had already been corrected to FERS
prior to the bill's enactment.
Estimate prepared by: Federal cost: Eric Rollins; Impact on
State, local, and tribal governments: Leo Lex; Impact on the
private sector: John Harris.
Estimate approved by: Paul N. Van de Water, Assistant
Director for Budget Analysis.
IX. Specific Constitutional Authority for This Legislation
Clauses 1 and 18 of Article 1, Sec. 8 of the Constitution
grant Congress the power to enact this law.
X. Committee Recommendation
On February 3, 1999, a quorum being present, the Committee
ordered the bill, as amended, favorably reported.
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT--106TH CONGRESS RECORD
VOTE
Date: February 3, 1999.
Final Passage of H.R. 416.
Offered by: Hon. Joe Scarborough (FL).
Adopted by voice vote.
XI. Congressional Accountability Act; Public Law 104-1; Section
102(b)(3)
The amendments made by H.R. 416 will apply to employees and
former employees of the legislative branch who participate (or
should participate) in the Federal retirement systems to the
same extent as it applies to other participating employees.
XII. Unfunded Mandates Reform Act; Public Law 104-4; Section 423
H.R. 416, as amended, would require both the government of
the District of Columbia and Gallaudet University to correct
retirement coverage errors affecting employees who participate
in the Federal retirement systems. This is both an
intergovernmental and a private-sector mandate as defined by
the Unfunded Mandates Reform Act. CBO estimates that the total
cost of the mandates would be minimal.
XIII. Federal Advisory Committee Act (5 U.S.C. App.) Section 5(b)
The Committee finds that the legislation does not establish
or authorize establishment of an advisory committee within the
definition of 5 U.S.C. App., Section 5(b)
XIV. Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(g) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
SECTION 210 OF THE SOCIAL SECURITY ACT
DEFINITION OF EMPLOYMENT
Sec. 210. For the purposes of this title--
Employment
(a) The term ``employment'' means any service performed after
1936 and prior to 1951 which was employment for the purposes of
this title under the law applicable to the period in which such
service was performed, and any service, of whatever nature,
performed after 1950 (A) by an employee for the person
employing him, irrespective of the citizenship or residence of
either, (i) within the United States, or (ii) on or in
connection with an American vessel or American aircraft under a
contract of service which is entered into within the United
States or during the performance of which and while the
employee is employed on the vessel or aircraft it touches at a
port in the United States, if the employee is employed on and
in connection with such vessel or aircraft when outside the
United States, or (B) outside the United States by a citizen or
resident of the United States as an employee (i) of an American
employer (as defined in subsection (e) of this section), or
(ii) of a foreign affiliate (as defined in section 3121(l)(6)
of the Internal Revenue Code of 1986 of an American employer
during any period for which there is in effect an agreement,
entered into pursuant to section 3121(l) of such Code, with
respect to such affiliate, or (C) if it is service, regardless
of where or by whom performed, which is designated as
employment or recognized as equivalent to employment under an
agreement entered into under section 233; except that, in the
case of service performed after 1950, such term shall not
include--
(1) * * *
* * * * * * *
(5) Service performed in the employ of the United
States or any instrumentality of the United States, if
such service--
(A) * * *
* * * * * * *
(H) service performed by an individual--
(i) on or after the effective date of
an election by such individual, under
section 301 of the Federal Employees'
Retirement System Act of 1986, section
307 of the Central Intelligence Agency
Retirement Act (50 U.S.C. 2157), or the
Federal Employees' Retirement System
Open Enrollment Act of 1997 to become
subject to the Federal Employees'
Retirement System provided in chapter
84 of title 5, United States Code, [or]
(ii) on or after the effective date
of an election by such individual,
under regulations issued under section
860 of the Foreign Service Act of 1980,
to become subject to the Foreign
Service Pension System provided in
subchapter II of chapter 8 of title I
of such Act[;], or
(iii)(I) described in section
111(a)(3) of the Federal Retirement
Coverage Corrections Act, on or after
the effective date of an election (or
deemed election) by such individual
under section 111(b)(2) of such Act;
(II) described in section 131(a)(1)
of such Act, on or after the effective
date of an election (or deemed
election) by such individual under
subsection (b)(2) or (c)(1) of section
131 of such Act; or
(III) described in section 151(a) of
such Act, on or after the effective
date of an election (or deemed
election) by such individual under
subsection (b)(2) or (c)(1) of section
151 of such Act;
* * * * * * *
----------
SECTION 3121 OF THE INTERNAL REVENUE CODE OF 1986
SEC. 3121. DEFINITIONS.
(a) * * *
(b) Employment.--For purposes of this chapter, the term
``employment'' means any service, of whatever nature, performed
(A) by an employee for the person employing him, irrespective
of the citizenship or residence of either, (i) within the
United States, or (ii) on or in connection with an American
vessel or American aircraft under a contract of service which
is entered into within the United States or during the
performance of which and while the employee is employed on the
vessel or aircraft it touches at a port in the United States,
if the employee is employed on and in connection with such
vessel or aircraft when outside the United States, or (B)
outside the United States by a citizen or resident of the
United States as an employee for an American employer (as
defined in subsection (h)), or (C) if it is service, regardless
of where or by whom performed, which is designated as
employment or recognized as equivalent to employment under an
agreement entered into under section 233 of the Social Security
Act; except that such term shall not include--
(1) * * *
* * * * * * *
(5) service performed in the employ of the United
States or any instrumentality of the United States, if
such service--
(A) * * *
* * * * * * *
(H) service performed by an individual--
(i) on or after the effective date of
an election by such individual, under
section 301 of the Federal Employees'
Retirement System Act of 1986 or
section 307 of the Central Intelligence
Agency Retirement Act (50 U.S.C. 2157),
to become subject to the Federal
Employees' Retirement System provided
in chapter 84 of title 5, United States
Code, [or]
(ii) on or after the effective date
of an election by such individual,
under regulations issued under section
860 of the Foreign Service Act of 1980,
to become subject to the Foreign
Service Pension System provided in
subchapter II of chapter 8 of title I
of such Act; or
(iii)(I) described in section
111(a)(3) of the Federal Retirement
Coverage Corrections Act, on or after
the effective date of an election (or
deemed election) by such individual
under section 111(b)(2) of such Act;
(II) described in section 131(a)(1)
of such Act, on or after the effective
date of an election (or deemed
election) by such individual under
subsection (b)(2) or (c)(1) of section
131 of such Act; or
(III) described in section 151(a) of
such Act, on or after the effective
date of an election (or deemed
election) by such individual under
subsection (b)(2) or (c)(1) of section
151 of such Act;
* * * * * * *
----------
TITLE 5--UNITED STATES CODE
* * * * * * *
PART III--EMPLOYEES
* * * * * * *
Subpart G--Insurance and Annuities
* * * * * * *
CHAPTER 83--RETIREMENT
* * * * * * *
SUBCHAPTER III--CIVIL SERVICE RETIREMENT
* * * * * * *
Sec. 8348. Civil Service Retirement and Disability Fund
(a) There is a Civil Service Retirement and Disability Fund.
The Fund--
(1) * * *
(2) is made available, subject to such annual
limitation as the Congress may prescribe, for any
expenses incurred by the Office in connection with the
administration of this chapter, chapter 84 of this
title, and other retirement and annuity [statutes;]
statutes (including the provisions of the Federal
Retirement Coverage Corrections Act that relate to this
subchapter); and
(3) is made available, subject to such annual
limitation as the Congress may prescribe, for any
expenses incurred by the Merit Systems Protection Board
in the administration of appeals authorized under
sections 8347(d) and 8461(e) of this [title.] title and
the Federal Retirement Coverage Corrections Act.
* * * * * * *
CHAPTER 84--FEDERAL EMPLOYEES' RETIREMENT SYSTEM
* * * * * * *
SUBCHAPTER III--THRIFT SAVINGS PLAN
* * * * * * *
Sec. 8432. Contributions
(a) * * *
* * * * * * *
(h) No transfers or contributions may be made to the Thrift
Savings Fund except as provided in this chapter or section 8351
of this [title.] title or the Federal Retirement Coverage
Corrections Act.
* * * * * * *
Sec. 8437. Thrift Savings Fund
(a) There is established in the Treasury of the United States
a Thrift Savings Fund.
(b) The Thrift Savings Fund consists of the sum of all
amounts contributed under section 8432 of this title and all
amounts deposited under section 8479(b) of this title,
increased by the total net earnings from investments of sums in
the Thrift Savings Fund or reduced by the total net losses from
investments of the Thrift Savings Fund, and reduced by the
total amount of payments made from the Thrift Savings Fund
(including payments for administrative [expenses).] expenses),
as well as contributions under the Federal Retirement Coverage
Corrections Act (and lost earnings made up under such Act).
* * * * * * *
(d) Administrative expenses incurred to carry out this
subchapter (including the provisions of the Federal Retirement
Coverage Corrections Act that relate to this subchapter) and
subchapter VII of this chapter shall be paid first out of any
sums in the Thrift Savings Fund forfeited under section 8432(g)
of this title and then out of net earnings in such Fund.
* * * * * * *