Analysis of Grace Commission Proposals To Change the Civil Service Retirement System

Pursuant to a congressional request, GAO analyzed the recommendations made by the Private Sector Survey on Cost Control, commonly referred to as the Grace Commission, to change the civil service retirement system.

The Commission concluded that the cost and benefit levels of the civil service retirement system are much greater than private sector retirement programs. Generally, the Commission's recommendations were presented as a means by which the federal retirement system could be made comparable to private sector pension plans, and it estimated a savings of $43 billion on a present value basis if all of its recommendations are implemented. GAO stated that, in many respects, the Commission's recommendations are representative of private sector plan features. However, the Commission's proposals do not include a capital accumulation plan, which is a major element of private sector retirement programs. Without such a plan, adoption of the recommendations would result in lower benefits for federal employees than are typically provided to private sector employees. GAO found that, for many of its recommendations, the Commission overstated the level of savings which could be achieved. Some of the recommendations would reduce the value of benefits which employees have already accrued, and two of the recommendations would reduce benefit amounts now being paid to many retirees. If enacted, these benefit reductions could be questioned in the courts.