House Report 106-29 - FEDERAL RETIREMENT COVERAGE CORRECTIONS ACT

[House Report 106-29]
[From the U.S. Government Publishing Office]

106th Congress Rept. 106-29
1st Session HOUSE OF REPRESENTATIVES Part 2
_______________________________________________________________________

FEDERAL RETIREMENT COVERAGE CORRECTIONS ACT

_______

March 5, 1999.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed

_______________________________________________________________________

Mr. Archer, from the Committee on Ways and Means, 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 Ways and Means, 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 and Background............................................2
A. Purpose and Summary................................... 2
B. Background and Need for Legislation................... 2
C. Legislative History................................... 3
II. Explanation of Social Security and Tax Provisions.................3
A. General Provisions (Title II)......................... 3
B. Tax Provisions (Title IV)............................. 4
III.Vote of the Committee.............................................5

IV. Budget Effects of the Bill........................................6
A. Committee Estimates of Budgetary Effects.............. 6
B. Budget Authority and Tax Expenditures................. 6
C. Cost Estimates Prepared by the Congressional Budget
Office............................................... 6
V. Other Matters To Be Discussed Under the Rules of the House.......13
A. Committee Oversight Findings and Recommendations...... 13
B. Summary of Findings and Recommendations of the
Committee on Government Reform....................... 14
C. Constitutional Authority Statement.................... 14
D. Information Relating to Unfunded Mandates............. 15
E. Applicability of House Rule XXI5(b)................... 15
F. Complexity Analysis................................... 15
VI. Changes in Existing Law Made by the Bill, as Reported............16

I. SUMMARY AND BACKGROUND

A. Purpose and Summary

H.R. 416, as amended, provides a method to correct errors
in misclassification of Federal employees which resulted in
thousands of Federal employees being erroneously placed in the
wrong Federal retirement system. These retirement systems
include: (1) the Civil Service Retirement System (``CSRS'');
(2) the Federal Employees Retirement System (``FERS''); (3) the
Civil Service Retirement System Social Security Offset Plan
(``CSRS Offset''); or (4) Social Security only. The bill
applies to all Federal employees, including former employees,
annuitants and survivors. The bill extends the same correction
options to employees of the foreign service and intelligence
agencies.
The bill provides a comprehensive solution to these
retirement coverage errors. In general, employees may choose
between the retirement system they were mistakenly placed in or
the system they should have been placed in retroactive to the
date of the error. Two exceptions apply to this general rule.
The first exception does not permit an employee who was
erroneously placed in CSRS to elect to remain in it; the
employee may elect instead to be enrolled in the CSRS Offset
system. The second exception applies to employees who should
have been enrolled in Social Security only. Unless such
employees are vested in the system in which they were
mistakenly placed, they may not elect to remain in such system.
The bill requires the employing agencies to take certain
steps to make the employee whole with respect to retirement
plan benefits under the correct plan. Depending on the precise
circumstances of the individual, these steps may include: (1)
makeup contributions to the plan by the employing agency
(including contributions to the Thrift Savings Plan (``TSP'')
in lieu of elective deferrals the employee would have been
eligible to make had the employee been properly enrolled); (2)
intra-fund or intra-Governmental transfers of funds; and (3)
certain makeup contributions by the employing agency for social
security taxes. The employing agencies will make all necessary
payments from appropriated funds. Employees who were mistakenly
permitted to contribute to the TSP would be able to maintain
their elective deferrals (plus earnings) in the TSP subject to
the rules generally applicable to such plan. In some cases,
employees could forfeit benefits previously accrued (e.g.,
matching contributions made to an individual mistakenly
enrolled in FERS). The bill amends the Social Security Act so
CSRS-eligible employees who choose FERS or Social Security
coverage may receive Social Security benefits.

B. Background and Need for Legislation

The Committee believes that legislation should be enacted
in a timely fashion in order to correct errors in
misclassification of Federal employees into the wrong Federal
retirement system. The bill provides that individuals entitled
to Social Security coverage who were erroneously placed in the
wrong Federal retirement system receive credit for the period
of retirement coverage error. The bill also provides that no
Federal retirement plan involved in the correction under the
bill shall fail the retirement plan tax qualification rules by
reason of such correction. Further, the bill provides that no
Federal employee involved in the correction shall be subject to
additional Federal tax consequences as a result of such
correction.

C. Legislative History

The Committee on Ways and Means marked up the revenue and
social security provisions of H.R. 416 (``The Federal
Retirement Coverage Corrections Act'') on February 11, 1999.
The bill was ordered favorably reported by a voice vote, with a
quorum present.
H.R. 416 was ordered favorably reported by the House
Committee on Government Reform on February 3, 1999.¹
---------------------------------------------------------------------------
\1\ H.R. 416, as introduced on January 19, 1999, was referred to
the Committee on Government Reform and, in addition, to the Committee
on Ways and Means for consideration of provisions in their respective
jurisdictions. (See also letter from the Committee on Government Reform
to the Committee on Ways and Means relating to the bill, dated February
4, 1999, which is included in Part V.B of this report.)
---------------------------------------------------------------------------

II. EXPLANATION OF SOCIAL SECURITY AND TAX PROVISIONS

A. General Provisions (Title II)

(Secs. 203, 204, 205, and 208 of the bill)

Present law

Under present law, Federal employees participate in one of
four retirement systems: CSRS, CSRS Offset, Social Security
only, and FERS. Individuals who are eligible for CSRS Offset,
Social Security only, or FERS receive Social Security coverage.
Individuals who are eligible for CSRS do not receive Social
Security coverage. Under the CSRS, CSRS Offset, and FERS
retirement systems, both the employee and the employing agency
make contributions to the Civil Service Retirement and
Disability Fund (``CSRDF'').
For those employees enrolled in one of the retirement
systems with Social Security coverage, Social Security taxes
are paid into the general fund of the Treasury and transferred
to the Social Security Trust Funds. If Social Security taxes
should have been, but were not paid with respect to an
individual's employment, the taxes may be assessed subject to
the statute of limitations of three years. Similarly,
improperly paid Social Security taxes may be refunded for the
period within the statute of limitations.
Previously unrecorded earnings may be added to an
individual's Social Security earnings record at any time.
Improperly recorded earnings may only be removed from an
individual's earnings record for the period within the statute
of limitations.

Reasons for change

The Committee believes it is appropriate to ensure that
individuals entitled to Social Security coverage who were
erroneously placed in the wrong Federal retirement system
receive credit for the period of retirement coverage error.

Explanation of provisions

The bill provides that when an individual who was
incorrectly enrolled in CSRS changes to one of the retirement
systems that provides for Social Security coverage, the
individual will receive credit on his or her Social Security
earnings record for earnings retroactive to the date of the
retirement coverage error. Under the bill, the Social Security
Trust Funds are made whole for any contributions that should
have been made on behalf of the individual.
The bill provides that all of the amounts that should have
been paid into the Social Security Trust Funds from the time of
the incorrect enrollment shall be transferred to the Trust
Funds. The amounts will be transferred to the Trust Funds from
the individual's account in CSRDF and, if that amount is not
sufficient, from the appropriated accounts of the agency. The
bill providesconforming changes to the coverage provisions of
the Social Security Act and the Internal Revenue Code if an individual
elects to remain in the retirement system to which such individual was
incorrectly enrolled.
If an individual who was incorrectly enrolled in a
retirement system that has Social Security coverage elects to
become enrolled in CSRS, then, as under present law, Social
Security taxes paid on behalf of the individual for the period
subject to the statute of limitation (i.e., within the last 3
years) would be refunded to the agency and to the employee. The
bill provides that the agency shall deposit in the CSRDF an
amount equal to the shortfall in CSRS contributions that should
have been made on behalf of the individual and that the
individual shall reimburse the agency for such deposits up to
the amount of Social Security taxes refundable to the
individual. As under present law, earnings on the individual's
Social Security earnings record for the period subject to the
statute of limitations would be deleted, but earnings for prior
periods would not.
The bill also provides authority for the Commissioner of
Social Security to obtain necessary information from agencies
to notify the Secretary of the Treasury to transfer into the
Social Security Trust Funds those Social Security taxes paid as
a result of elections under the bill, and to correct earnings
records.

Effective date

The Social Security provisions are effective on the date of
enactment.

B. Tax Provisions (Title IV)

(Sec. 401 of the bill)

Present law

Under present law, Federal employees generally participate
in one of four retirement plans: CSRS, FERS, CSRS Offset, or
Social Security only. Participants in CSRS, CSRS Offset, and
FERS may participate in the Federal Thrift Savings Plan
(``TSP''), which is similar to a qualified cash or deferred
arrangement under section 401(k) of the Internal Revenue Code.
The Federal retirement plan in which any person participates
depends on a number of factors, including the individual's
employment status and date of hire. The rules governing
participation in the TSP vary depending on the Federal
retirement plan (i.e., CSRS, CSRS-Offset, or FERS) under which
the individual is covered. The Federal retirement plans are
generally subject to the same rules applicable to tax-qualified
retirement plans maintained by private sector-employers. These
rules include limits on the amount of elective deferrals that
may be made on behalf of an employee in a tax year under a
section 401(k) plan, such as the TSP, and an overall limitation
on contributions and benefits that may be provided to an
employee under the plan.
The limit on the amount of elective deferrals that an
employee may make to a section 401(k) plan for 1999 is $10,000.
The overall limit on contributions and benefits for an employee
for a year is different for defined benefit plans and defined
contribution plans. The limitation for an annual benefit under
a defined benefit plan is the lesser of (1) $130,000 (for
1999), or (2) 100 percent of the participant's average
compensation for his high three years. The limitation for
annual contributions and other additions under a defined
contribution plan is the lesser of (1) $30,000, or (2) 25
percent of the participant's compensation.

Reasons for change

The Committee believes it is appropriate to correct errors
in the misclassification of Federal employees resulting in such
employees being erroneously placed in the wrong retirement
system. The Committee believes that no Federal retirement plan
involved in the correction should fail the retirement plan tax
qualification rules by reason of such correction. The Committee
also believes that no Federal employee involved in the
correction should be subject to additional tax consequences as
a result of such correction.

Explanation of provisions

The bill provides that the Federal retirement plans will
not fail to be treated as qualified retirement plans under the
Internal Revenue Code by reason of any action taken pursuant to
the bill. Thus, for example, the bill permits an employing
agency to make up contributions on behalf of an employee, or
former employee, who was entitled to such contributions in
prior years without violating the applicable overall
contribution and benefit limitations (sec. 415) for the year in
which the makeup contribution is made. However, the amount
contributed may not violate section 415 for the year for which
the contribution is made.
The bill provides that no amount is includible in the
income of any individual for Federal tax purposes by reason of
fund transfers or government contributions made pursuant to the
bill. In addition, the bill provides that no amount shall be
subject to employment taxes under Subtitle C of the Internal
Revenue Code by reason of such transfers or contributions.

Effective date

The tax provisions are effective on the date of enactment.

III. VOTE OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the vote of the Committee on Ways and Means in its
consideration of the bill, H.R. 416.

motion to report the bill

The bill, H.R. 416, was ordered favorably reported by a
voice vote (with a quorum present).

IV. BUDGET EFFECTS OF THE BILL

A. Committee Estimates of Budgetary Effects

In compliance with clause 3(d)(2) of rule XIII of the Rules
of the House of Representatives, the following statement is
made concerning the estimated budget effects of H.R. 416, as
reported by the Committee on Ways and Means.
The bill, as reported, is estimated to have the following
effect:

ESTIMATED REVENUE EFFECTS OF H.R. 416, THE ``FEDERAL RETIREMENT COVERAGE CORRECTIONS ACT,'' AS APPROVED BY THE
COMMITTEE ON WAYS AND MEANS
[Fiscal Years 1999-2003, in millions of dollars]
----------------------------------------------------------------------------------------------------------------
1999-
Provision Effective 1999 2000 2001 2002 2003 2003
----------------------------------------------------------------------------------------------------------------
Correction of Certain Retirement Coverage DOE Negligible Revenue Effect
Errors Affecting Federal Employees.
----------------------------------------------------------------------------------------------------------------
Note.--Details may not add to totals due to rounding.

Legend for ``Effective'' column: DOE=date of enactment.

Source: Joint Committee on Taxation.

The Committee agrees with the Congressional Budget Office
estimate of the spending effects of the bill, as amended. (See
Part IV.C., below.)

B. Budget Authority and Tax Expenditures

budget authority

In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
provisions of the bill as reported involve changes in budget
authority. (See statement of the Congressional Budget Office in
Part IV.C., below.)

tax expenditures

In compliance with clause 3(c)(2) of rule XIII of the rules
of the House of Representatives, the Committee states that the
revenue provisions of the bill as reported may have a
negligible effect on tax expenditures.

C. Cost Estimate Prepared by the Congressional Budget Office

In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the Congressional Budget Office, the Committee
advises that the Congressional Budget Office has submitted the
following statement on this bill.

U.S. Congress,
Congressional Budget Office,
Washington, DC, February 19, 1999.
Hon. Bill Archer,
Chairman, Committee on Ways and Means,
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 is Eric Rollins.
Sincerely,
Dan L. Crippen, Director.
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 years, 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.

Notes: 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 the 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 hybrid 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 offices in a
number of large government agencies, including the Postal
Service and the Departments 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 appear 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 the 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 incorrectly 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 long
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 Government
Reform on February 3, 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; and impact on
the private sector: John Harris.
Estimate Approved by: Paul N. Van de Water, Assistant
Director for Budget Analysis.

V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

A. Committee Oversight Findings and Recommendations

With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was the result of the Committee's
oversight activities with respect to the misclassification of
Federal employees into the wrong Federal retirement system that
the Committee concluded that it is appropriate and timely to
enact the provisions contained in the bill as reported.

B. Summary of Findings and Recommendations of the Committee on
Government Reform

With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee on Ways and Means
advises that the Committee on Government Reform ordered H.R.
416 favorably reported on February 3, 1999. The Committee on
Government Reform submitted the following letter regarding H.R.
416.

House of Representatives,
Committee on Government Reform,
Washington, DC, February 4, 1999.
Hon. Bill Archer,
Chairman, Committee on Ways and Means, Longworth House Office Building,
Washington, DC.
Dear Mr. Chairman: I am writing with regard to the Federal
Retirement Coverage Corrections Act, H.R. 416, which has been
referred to the Committee on Ways and Means in addition to the
Committee on Government Reform. The Committee on Government
Reform ordered this bill reported by a unanimous voice vote on
February 3, 1999, and it has strong bipartisan support on this
Committee. The bill has been tentatively scheduled for House
consideration during the week of February 22, 1999.
Title IV of H.R. 416 includes tax provisions that were
drafted in close consultation with the Ways and Means tax staff
and experts from the Joint Committee on Taxation. This bill is
essentially the same as H.R. 3249, the bill the House passed
last year after it was marked up by both this Committee and
Ways and Means.
This measure is extremely important to the estimated 18,000
thousand active and retired federal employees who have been
placed in the wrong retirement system. Under current law, these
errors are ``corrected'' by transferring the affected employees
from the wrong retirement system to the correct one. Because
current law does not include make whole relief, such
corrections inflict great financial and emotional damage on the
innocent victims of these agency errors. Please advise me
whether the Committee on Ways and Means would be willing to
refrain from asserting its jurisdiction over this measure so it
may be taken to the floor expeditiously.
Thank you for your prompt consideration of this important
matter. I appreciate your support and very valuable assistance
in crafting a satisfactory remedy, and I look forward to
working with you on this and many other important matters
during this Congress.
Sincerely,
Dan Burton, Chairman.

C. Constitutional Authority Statement

With respect to clause 3(d)(1) of rule XIII of the Rules of
the House of Representatives (relating to Constitutional
authority), the Committee states that the Committee's action in
reporting this bill is derived from Article I of the
Constitution, Section 7 (``All bills for raising revenue shall
originate in the House of Representatives'') and Section 8
(``The Congress shall have the power to lay and collect taxes,
duties, imposts and excises, to pay the debts . . . of the
United States''), and from the 16th Amendment to the
Constitution.

D. Information Relating to Unfunded Mandates

This information is provided in accordance with section 423
of the Unfunded Mandates Act of 1995 (P.L. 104-4). The
Committee has determined that the revenue provisions of H.R.
416, contain no private sector mandates or intergovernmental
mandates within the meaning of the Unfunded Mandates Act of
1995.

E. Applicability of House Rule XXI5(b)

Rules XXI5(b) of the Rules of the House of Representatives
provides that a ``bill or joint resolution, amendment, or
conference report carrying a Federal income tax rate increase
may not be considered as passed or agreed to unless so
determined by a vote of not less than three-fifths of the
Members voting, a quorum being present. In this paragraph the
term ``Federal income tax rate increase'' means any amendment
to subsection (a), (b), (c) (d), or (e) of section 1, or to
section 11(b) or 55(b), of the Internal Revenue Code of 1986,
that imposes a new percentage as a rate of tax and thereby
increases the amount of tax imposed by any such section.'' The
Committee has carefully reviewed the provisions of the bill,
and states that the provisions of the bill as reported do not
involve any Federal income tax rate increase within the meaning
of the rule.

F. Complexity Analysis

Clause (h)(1) XIII of the Rules of the House of
Representatives provides that, ``it shall not be in order to
consider a bill or joint resolution reported by the Committee
on Ways and Means that proposes to amend the Internal Revenue
Code of 1986 unless--(A) the report includes a tax complexity
analysis prepared by the Joint Committee on Internal Revenue
Taxation in accordance with section 4022(b) of the Internal
Revenue Service Restructuring and Reform Act of 1998; or (B)
the chairman of the Committee on Ways and Means causes such a
tax complexity analysis to be printed in the Congressional
Record before consideration of the bill or joint resolution.''
Section 4022(b) of the Internal Revenue Service Reform and
Restructuring Act of 1998 (the ``IRS Reform Act''), requires
the Joint Committee on Taxation (``Joint Committee'') (in
consultation with the Internal Revenue Service and the
Department of the Treasury) to provide a tax complexity
analysis. The complexity analysis is required for all
legislation reported by the Senate Committee on Finance, the
House Committee on Ways and Means, or any committee of
conference if the legislation includes a provision that
directly or indirectly amends the Internal Revenue Code (the
``Code'') and has widespread applicability to individuals or
small businesses.
The staff of the Joint Committee has determined that a
complexity analysis is not required under section 4022(b) of
the IRS Reform Act because the bill contains no provisions that
amend the Internal Revenue Code and that have widespread
applicability to individuals or small businesses.

VI. 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.

* * * * * * *