The Federal Employees' Retirement System

This testimony discusses the potential impact on agency retirement costs of a retirement system open season in which anyone who is a general schedule civilian employee of the federal government and is participating in the Civil Service Retirement System (CSRS) or its offset plan would be allowed to transfer to the Federal Employees Retirement System (FERS). GAO makes three main points. First, it is difficult to predict the number and salary levels of those eligible employees who would switch. Second, assuming that some employees opt to switch, agency retirement costs would increase following an open season because of differences in the way that CSRS and FERS are funded. Third, because of the uncertainty regarding how many employees might transfer, it is hard to estimate whether agencies would have difficulty absorbing such an increase.

GAO noted that: (1) it is difficult to predict who among eligible employees would switch; (2) review of the first FERS transfer program in 1987 showed that although eligible employees were provided the information and counseling that they would need to make a decision, about 4 percent of the eligible employees transferred to FERS; (3) the review suggests that employee decisions can be based on situational factors that are economic as well as noneconomic; (4) assuming some employees opt to switch, agency retirement costs would increase following an open season because of differences in the way CSRS and FERS are funded; (5) the amount of any increase would critically depend on the number of employees who switch and their salary levels; (6) given the uncertainty regarding how many employees might transfer, it is correspondingly difficult to estimate whether agencies would have a difficult time absorbing the cost increases; (7) although the largest increase in retirement costs GAO calculated--$332 million--would appear small in proportion to the costs of personnel benefits governmentwide, some agencies might find the costs difficult to absorb, depending on their different circumstances; and (8) regardless of the size of the increases in costs, under the budget process discretionary spending is capped, and Congress may choose not to provide agencies extra funding to cover their increased retirement costs.