WHAT WENT WRONG IN 1986

In 1986, Congress changed the way federal annuities are calculated for part-time employees. However, something went terribly wrong during implementation of this legislation. Federal employees retiring on part-time status with substantial full-time service prior to April 6, 1986 are living with the consequences today. The vast majority to this day likely do not know what happened to them or will happen to them. This is because of lack of publicity on the topic and relatively complex rules that run counter to good judgment and what is intuitive

What Did Legislation Do in 1986?

Congress changed the way retirement benefits are calculated for part-time federal employees as part of PL 99-272 enacted on April 6, 1986. The amendments were to be effective with respect to service performed on or after the date of enactment.

Why Was Legislation Needed?

Prior to that time, calculation of part-time annuities piggybacked on the way retirement benefits are calculated for regular employees. Salary was the cornerstone of the calculation. This works well only when work patterns are constant over an entire career. Severe inequities resulted in two cases: (1) employees could game the system and work full-time the final three years of their career and receive a full-time annuity for a part-time career, and (2) conversely, full-time employees who converted to part-time did not receive the annuity benefits they had earned.

What Was the Basis for the 1986 Legislation?

The 1986 legislation was based on a procedure developed by the Government Accounting Office (GAO). Report GAO/PEMD-86-2, "Retirement Benefits: Modification of Civil Service Retirement Benefits for Part-Time Work" documents their efforts and objectives. The GAO recognized the inequities in both cases and sought to correct them. They firmly stated that "benefits should not reflect differences in the career patterns of employees who give the same amount of overall service." The procedure they developed fairly calculates benefits in all situations, neither overpaying certain employees nor underpaying others. The new methodology determines the proportion of a full-time career that a part-time employee works and scales annuities accordingly. The GAO's best estimate was that the changes would result in a net saving to the government. However, the GAO noted that they "believe that any decision to adopt the modification should seek to remedy the inequities inherent in [the existing system] rather than to achieve a financial effect that may or may not occur."

What Was the Initial Approach to Implementing the 1986 Legislation?

On January 15, 1987, the Office of Personnel Management (OPM) published interim regulations in the Federal Register and requested comments. These regulations adopted the new methodology developed by GAO for all employees retiring after April 6, 1986 and applied the methodology to their entire career.

What Were Chairman William D. Ford's Comments on the Interim Regulations?

In a scathing letter dated February 19, 1987 to the Director, OPM, Congressman William D. Ford, Chairman, Committee on Post Office and Civil Service Reform, stated that OPM had interpreted the law improperly and was contravening Congressional intent. He specifically stated that "in practical application, an employee's part-time employment up to April 7, 1986, is to be calculated according to the old formula, applying final full-time [emphasis added] salary to service accumulated to that date." The purpose of Congressman Ford's letter was to protect Government employees and "grandfather" benefits to the date of the enactment. It was clearly not intended to pit the interests of gamers against that of earners. Given the impetus of the legislation, such a choice would have been absurd.

What Was OPM's Response?

OPM responded to Chairman Ford on March 31, 1986 and led him to believe his instructions would be followed. Unfortunately, OPM ignored or overlooked the point of using a final full-time salary for the pre-April 6, 1986 component. They published final rules on June 12, 1987, putting in place the flawed two component process in place today. The pre-April 6, 1986 component uses the actual salary rather than a deemed full-time salary in its calculation.

Did OPM Have Any Options in Implementing the Legislation?

The GAO report spoke of the need for a transition period. OPM rules have none. Other alternatives existed in addition to Congressman Ford's solution of using a full-time rate of pay in the calculation of the pre-April 6, 1986 annuity component that would have been compatible with the legislation. Allowing a part-time employee to have the option, as an alternative calculation, of applying the methods developed in 1986 to their entire career is foremost among these. There are ample precedents for such an approach in the retirement regulations. Another possibility would be to ensure all full-time work prior to April 6, 1986 has a deemed full-time salary associated with it in annuity calculations from any point in an employee's career, including service after April 6, 1986. There is no valid reason for not following an approach such as these since 1986.

What About the Administrative Procedure Act?

By altering course during rulemaking and publishing final rules that differed drastically from those subject to public comment, OPM managed in their rush to rulemaking to short circuit the Administrative Procedure Act. This law subjects major regulations to public comment. An opportunity for public comment on the final rules may have revealed the problems.

What Were the Effects of This Botched Implementation?

The result is today's convoluted, irrational, and inequitable way of calculating annuities for federal employees with part-time service. OPM managed to solve only one-half of the inequities identified in the GAO report. The ability to game the system was ended - but the unjustness to employees converting from full-time to part-time was perpetuated and exacerbated.

Today, 13 years after legislation intended to correct problems, an employee converting from full-time to part-time at mid-career and continuing to work part-time until the end of their career will get exactly the same retirement annuity as a person working part-time their entire career. The glass ceiling for women in higher management is replaced by a glass wall for part-time employees, the large majority of whom are women. They can see a fair treatment is possible, but are denied access.

A standard of fairness was established in 1986. It is unconscionable that a fair procedure for computing part-time benefits was established -- and yet many will receive an annuity much less than this procedure allows. They are, in essence, being cheated out of retirement benefits they have earned. Certain employees stand to lose up to 25% of the retirement benefits they have earned. The impact on those affected is large, particularly since their retirement is already reduced by virtue of their part-time employment. The reduction lasts the rest of their lives.

How Long Had OPM Known of the Problem?

OPM has known a problem exists since at least the mid 1990's. There is no excuse, given the explicit language in the GAO report, for OPM not being aware of what they were doing from the beginning. OPM has taken no initiative to correct or even to highlight the problem. OPM insists legislation is necessary even though the mistakes that were made were under the rulemaking process which is under OPM's cognizance. And yet OPM has neither suggested nor pushed legislation.

What Has OPM Done to Alert Employees?

OPM has done a miserable job letting employees know of the known detrimental effects of converting to part-time. Not a single word of warning on this is available from OPM in written form or on OPM's website (http://www.opm.gov). All the while, OPM actively promotes part-time employment as a way to retain employees and as a key component of their family-friendly workplace initiative. This is one of OPM's best kept secrets.

Is Anyone Trying to Correct the Problem?

Senator Charles Robb has introduced S. 772 to correct the mistakes made by OPM in 1987. Senator Robb's bill does exactly what Congressman Ford's letter asked OPM to do. OPM, to their credit, supports the bill in principle and, in effect, acknowledges the earlier error. Prospects for passage are uncertain at best, however, because OPM resists provisions in Senator Robb's that would allow those unfairly affected since 1986 to have their annuities recalculated with changes applicable to future payments.

Why does OPM oppose what it calls "retroactive" provisions?

OPM claims such provisions are inconsistent with its longstanding principle that benefit modifications should only apply to individuals retiring after enactment of such changes. Correction of past mistakes is also a principle many people would have as a priority. In the case of such glaring mistakes in implementation of earlier legislation, this would certainly seem to be in order and applying the correction only to future payments would seem a reasonable compromise.

A more substantial objection that OPM raises is that it would take an enormous workload to locate a very small number of cases. Requiring retirees to apply for recalculation (self-identification) would seem a practical way to overcome this concern. Perhaps a time limit (say two years) could be set to apply for recalculation, further reducing burden. OPM has shown no inclination, however, to suggest or negotiate such limitations.

What is OPM Doing to Solve the Problem?

Not much. A common OPM refrain has been to dismissively refer to those adversely affected as "anomalies." Converting to part-time after substantial full-time service is not an common career pattern, however. Permanent part-time employees constitute about 3% of the federal workforce at any single time. Using this factor to scale the number of non-postal federal employees retiring since 1986 and assuming a third of those are negatively affected yields roughly 10,000 "anomalies" to date. OPM could likely refine this estimate by scientifically sampling a set of current part-time employee benefit calculations. Meanwhile, the number of "anomalies" continues to grow.

Where Do Things Stand Now?

Congressman James P. Moran of Virginia has committed to introducing legislation in the House parallel to Senator Robb's. This is imminent. Active encouragement of our elected representative will be required to overcome OPM's less than unequivocal endorsement and ensure passage.

What Can You Do?

The most important single thing you can do is to write to your Senators and Congressman and encourage them to cosponsor and support corrective legislation. You can also:

- Write to Senators Thad Cochran and Daniel Akaka and to Congressman Joe Scarborough and Congressman Elijah Cummings (see Contacts for addresses).

- Ask your personnel office for a full explanation. Express your extreme dissatisfaction.

- Tell other part-time employees what you have learned.

- Write to OPM.