Pension reform: Congress stalls but takes care of itself

By Julia Malone - Cox News Service

WASHINGTON - It has been more than six months since senators listened sympathetically as Enron employees told how their retirement savings had been wiped out.

Steven Lacey, who had worked 21 years at an Enron-owned utility in Portland, Ore., said he "broke down and cried" the night he told his wife that his 401(k) retirement account was filled with stock from the bankrupt company.

Since then, more major bankruptcies have left thousands more employees with worthless company stock.

Yet on Capitol Hill, the long-promised pension reform has become ensnarled in a legislative pileup as Congress tries to shut down and head home for reelection campaigns.

One thing is certain, however. Even if lawmakers lose their $150,000-a-year jobs on Election Day, those with 20 or more years in office can look forward to a secure retirement.

"The benefits are better than the typical rank and file pensions out in the country - even for large companies," said Ron Gebhardtsbauer, who helped draw up the current congressional pension in 1984 when he worked at the federal government's Office of Personnel Management.

Now senior pension fellow for the Washington-based American Academy of Actuaries, Gebhardtsbauer said that the lawmakers are able to retire younger, with higher guaranteed pensions and a better savings plan than most corporate employees at similar salary levels.

That view is seconded by Ethan Kra, chief actuary for Mercer Human Resource Consulting, a company with offices in 40 U.S. cities that advises employees on pension plans.

Kra compared the retirement package for a member of Congress with two decades of service to the benefits offered by one of his corporate clients - a communications enterprise with more than 10,000 employees.

A match-up of the two programs shows major advantages for congressional retirees in almost every respect:

AGE OF RETIREMENT
Lawmakers who lose their seats this year after serving 20 years can take their pensions as early as age 50, and any member with at least five years of service can receive full benefits at age 62.

An executive working for the private communications firm at a similar salary level would not be able to retire with full benefits until age 65.

"In corporate America, you don't get to retire at 50," Kra said. "The only time you see unreduced benefits at age 50 with 20 years of service is in some collectively bargained agreements in a very tough manual industry."

PENSION FORMULA
The "accrual rate" for calculating pensions for lawmakers is 1.7 percent of the average of their last three years' salaries, multiplied by the number of years of service. A member retiring after 20 years of service would have a starting annual benefit next year of $49,460.

The private company uses a more typical accrual rate of 1.5 percent based on the average of the employee's last five annual salaries. For the corporate retiree with the same pay history as members of Congress, the starting pension would be just under $42,600.

COST OF LIVING INCREASES
Congressional pensions, by law, are increased each year to keep pace with inflation.

The private company, like most employers nationwide, offers only infrequent and partial inflation adjustments.

CONTRIBUTIONS BY EMPLOYEES TO THEIR PENSION PLANS
In perhaps the only way that the congressional retirement system is less generous than private ones, lawmakers pay 1.3 percent of their annual salaries toward their pensions.

The private company employee is not required to make such a contribution.

Also as part of the congressional plan, members of Congress have a better-than-average tax-deferred savings plan similar to the 401(k) investment accounts provided by many private employers. The government matches dollar-for-dollar all contributions to these accounts made by a lawmaker, up to 5 percent of the lawmaker's annual salary. Private plans generally match only a fraction of each dollar contributed by an employee.

Moreover, the lawmakers do not have the insecurity of Enron workers and others whose 401(k) retirement accounts are glutted with their employer's stock, which many were barred from selling even as they watched its value drain away.

The congressional retirement program is richer than most for a reason, according to Gebhardtsbauer: "There's risk that they can lose their jobs."

That rationale does not sway critics, however.

Karen Friedman, director of policy strategies for the Pension Rights Center, a private advocacy group in Washington, pointed to the protections Congress has given its retirement plan.

"Why are members of Congress so weak-kneed and cowardly about passing good legislation to give the same protections for workers that they themselves have?" asked Friedman, whose group is dissatisfied with a private pension reform that passed the House last April as well as a proposal that is still awaiting Senate action.

AS THE MONEY TURNS

Others say Congress ought to cut back or cancel its pension program.

Among the most outspoken critics, the conservative National Taxpayers Union continually reminds the public of how much citizens pay for the congressional pension.

The group hits especially hard when a member departs under a cloud.

After Ohio Democratic Rep. Jim Traficant was convicted last summer of bribery, tax evasion and racketeering, the group issued a press release estimating that, even though he was heading for jail, he is still eligible to collect a pension of $37,120 the first year and $1.2 million over his actuarially-projected lifetime.

Only if a lawmaker were to be found guilty of treason could he lose this valuable perk of office.

The congressional pension was created by Congress in 1942. The idea caused such a storm of protest that most members did not start participating until after World War II.

The early pension plan, which had even more largesse than the current plan, provided benefits for some retirees that rose above the pay of active members.

Congress modified its retirement benefit plan in 1984. It reduced the pension formula and required lawmakers, for the first time, to join the Social Security system and pay the customary payroll tax - 6.2 percent of their salaries - for the coverage. (The additional 6.2 percent in Social Security taxes normally paid by employers for each employee is drawn from taxpayer funds.)

Rarely do members opt out of the retirement system.

Rep. Ron Paul, a Republican from Texas with a libertarian bent refused to join it after he first won a House seat in the 1970s, a time of rampant inflation.

"It was clear to me that it wasn't fair for somebody in politics to protect themselves from all the disadvantages" of the economy, he said in a recent interview.

Moreover, Paul sees the pension as a symptom of an overgrown government that now requires full-time lawmakers.

"We're not citizens who go to Washington and represent our people and then go home and make a living, which was the original intent," Paul said.

"And the people have created the system. They want professional politicians to manage their affairs and do so many things that I don't think the government should be doing."

Among lawmakers departing at year's end who will be collecting retirement benefits, the National Taxpayers Union lists some as potential pension millionaires.

Sen. Phil Gramm, the Texas Republican, began his service 24 years ago in the House under the old, more lucrative pension plan. He stands to collect an estimated $78,500 the first year and $2.8 million over his expected lifetime, according to the Taxpayers Union.

Another retiring Texas Republican, House Majority Leader Dick Armey, has served 18 years under the new pension plan and will be entitled to $44,500 his first year out of office. He is expected to collect $1.3 million over his expected lifetime.

Among other departing members with less tenure, benefits are lower:
- Rep. Cynthia McKinney, the Democrat who failed in her renomination race in Georgia after serving 10 years, can look forward to an annual pension of $17,300, but not until 2011, the year she reaches age 55.

- Rep. Gary Condit, D-Calif., lost his primary after allegations of an affair with a young government intern who went missing (…Is that like going for a stroll? Editor) and whose body was later found in a Washington park. After 14 years as a congressman, Condit will be able collect an estimated $19,500 his first year of retirement.

- Rep. Bob Barr, who lost his Georgia Republican primary, will be able to add his earlier CIA tenure to his eight years in Congress for an estimated pension of $33,500 his first year out of office.

© Copyright 2002 by Capitol Hill Blue

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