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CRS Report for CongressPrepared for Members and Committees of Congress Federal Employees:
Pay and Pension Increases Since 1969 Patrick Purcell Specialist in Income Security January 20, 2010 Congressional Research Servicewww.crs.gov Federal Employees: Pay and Pension Increases Since 1969 Congressional Research Service Summary Pay increases for current federal employees and cost-of-living adjustments (COLAs) for retired federal employees often differ because they are based on changes in different economic variables.Increases in pay for civilian federal workers are indexed to wage and salary increases in the private sector, as measured by the Employment Cost Index (ECI), whereas federal retirement and disability benefits are indexed to price increases as measured by the Consumer Price Index (CPI).Both the ECI and the CPI are calculated by the Bureau of Labor Statistics of the U.S.
Department of Labor.Under the terms of the Federal Employees Pay Comparability Act of 1990 (P.L.101-509), pay for civilian federal employees is adjusted each year to keep the salaries of federal workers competitive with comparable occupations in the private sector.The annual increases in federal employee pay are based on changes in the cash compensation paid to workers in the private sector, as measured by the ECI.Under certain circumstances, the President may limit the annual increase in federal pay by executive order.
Federal law also requires Social Security benefits and the pensions paid to retired federal employees to be adjusted for inflation each year.The COLAs for both Social Security and civil service pensions are based on the rate of inflation as measured by the CPI.
Congress has linked increases in federal pay to the ECI so that wages for federal employees will remain competitive with wages paid by firms in the private sector.Congress has linked COLAs for Social Security and federal retirement benefits to the rate of increase in the prices of goods and services to protect retirement income from losing purchasing power through the effects of inflation.In general, wage increases reflect both improvements in the productivity of labor and increases in the general level of prices in the economy.Consequently, when measured over long periods of time, wages tend to rise faster than prices.Because COLAs for retirees do not reflect increases in the productivity of people who are still in the work force, COLAs do not make retirees financially better off.COLAs merely protect retirees from becoming financially worse-off as prices rise over time.In 2010, there was no COLA for recipients of Social Security benefits or federal civil service pensions because the price level as measured by the CPI fell between 2008 and 2009.Increases in retirement benefits for retired federal employees were first linked to the CPI by law in 1962.Increases in Social Security benefits have been linked by law to changes in the CPI since 1973.Before then, Congress periodically adjusted Social Security benefits through legislation.
Congress chose to tie increases in these benefits to the CPI to make the process less subject to political influences.At year-end 2009, the overall price level as measured by the CPI was 477% higher than it was in 1969.As of January 2010, Social Security benefits have risen by 626% since 1969, and federal civil service retirement benefits have risen by 496%.Average wages among all workers in the economy have risen by 632% since 1969.Salaries for civilian federal employees have increased by 428% since 1969, and the salaries of Members of Congress have increased by 309%.This report is updated annually.Federal Employees: Pay and Pension Increases Since 1969 Congressional Research Service Contents COLAs Versus Pay to Use the Benefit and Pay Increase for Determining Security and Civil Service Civil Service Nationwide Pay Pay Raises for Within-Grade Step Increases
and for Members of Annual Wages and Table 1.
Increases in Social Security Benefits, Federal Civilian Pensions, Federal Pay, Congressional Pay, National Average Wages, and Consumer Prices, 1969 to 20107Contacts Author Contact Employees: Pay and Pension Increases Since 1969 Congressional Research Service nder the terms of the Federal Employees Pay Comparability Act of 1990 (P.L.
101-509), pay for civilian federal employees is adjusted each year to keep the salaries of federal workers competitive with comparable occupations in the private sector.The annual increases in federal employee pay are based on changes in the cash compensation paid to workers in the private sector, as measured by the Employment Cost Index (ECI).
Under certain circumstances, the President may limit the annual increase in federal pay by executive order.Federal law also requires Social Security benefits and the pensions paid to retired federal employees to be adjusted annually for inflation.The cost-of-living adjustments (COLAs) both for Social Security and civil service pensions are based on the rate of inflation as measured by the Consumer Price Index (CPI).Table 1 shows the pay increases since 1969 for federal employees and Members of Congress and COLAs applied to Social Security benefits and federal civil service pensions.Two national economic indexes also are displayed in Table 1 to provide a basis for comparison with the benefit and pay increases.These indexes show the average annual change in the wages of all workers in the United States, as computed by the Social Security Administration and the Consumer Price Index for Urban Wage Earners (CPI-W), a price index computed by the U.S.
Bureau of Labor Statistics.
COLAs Versus Pay Increases Pay increases for current federal workers and COLAs for retired federal workers often differ because they are based on changes in different economic variables.Pay increases for federal workers are based on changes in private-sector wages and salaries, whereas COLAs for retirees are based on increases the general level of prices in the national economy.The objective of federal pay policy is to keep pay in the federal government competitive with pay in the private sector.Increases in pay for federal civil service workers therefore are indexed to increases in the wages and salaries of private-sector employees.
Over time, wage increases reflect increases in the nations output of goods and services as well as price increases.Because wage increases in the private sector reflect growth in the productivity of labor, wages tend to increase faster than prices when measured over long periods of time.Social Security benefits and federal retirement annuities are indexed to increases in the CPI, which measures changes in the price of a market basket of consumer goods and services.Congress has linked COLAs for Social Security and federal employee pensions to the rate of increase in the general level of prices to protect retirement income from losing purchasing power through the effects of price inflation.COLAs ensure that a retirees income will purchase the same amount of goods and services after years of retirement that it purchased at the start of retirement.COLAs do not reflect increases in the productivity of people who are still in the work force, and thus they do not increase the real purchasing power of retirement income.COLAs do not make retirees better off financially; they merely protect them from becoming financially worse-off over time as prices rise.
The income-tested programs of Supplemental Security Income (SSI) and veterans pensions use the cost-of-living adjustment (COLA) formula of Social Security.Each year since 1983 these benefits have been increased at the same time and by the same percentage as Social Security benefits.
U Federal Employees: Pay and Pension Increases Since 1969 Congressional Research Service How to Use the Benefit and Pay Increase Table Table 1 shows the percentage increase in federal pay and retirement benefits for each year since 1969, and an index relative to the base year.The index shows the cumulative increase in pay or benefits, compounded annually, with a base of 100.0 in 1969.For example, Congress increased Social Security benefits by 15.0% in 1970, making benefits 115.0% of what they were in 1969.
Another Social Security benefit increase of 10.0% was granted in 1971, making benefits 126.5% of what they had been in 1969.
(1.15 X 1.10 = 1.265) Federal civilian retirees received a 5.6% increase in their annuities in 1970, raising those benefits to 105.6% of the 1969 level.The next increase in federal civilian retirement benefits was a 4.5% adjustment in 1971, bringing the average federal pension to 110.4% of its 1969 amount.(1.056 X 1.045 = 1.104) The bottom row of the index column shows how much federal pay and retirement benefits have grown since 1969.For example, with the COLA that was paid in Social Security checks issued in January 2009, these benefits had increased to 726% of their 1969 level, an increase of 626%.This means that a benefit initially paid in 1969 would be 7.26 times as large in 2009 if it were still being paid in that year.Benefit increases can be compared across programs by looking at the index column for any given year.
For example, as of 1985, federal civilian pay had increased by 134% over what it had been in 1969, and congressional pay had increased by 77%.In comparison, average wages and salaries for all workers in the U.S.economy in 1985 were 185% greater than they had been in 1969.
The column displaying the CPI shows that by 1985 the price level had increased by 190% since 1969
.Procedures for Determining Increases Social Security and Civil Service Retirement Social Security and civil service retirement benefits are adjusted to offset the effect of inflation in the cost of living as measured by a price index.Cost-of-living adjustments enable retirees to maintain the purchasing power of their retirement income.
Automatic adjustments to offset erosion in the value of retirement benefits caused by inflation were first applied to civil service retirement benefits by P.L.87-783, enacted in 1962.In 1972, P.L.
92-336, provided for automatic inflation-related increases in Social Security benefits.Benefit increases in Social Security preceding 1975 were not automatic COLAs linked to inflation, but were special adjustments legislated by Congress.For example, Congress granted the 1970, 1971, and 1972 Social Security
An index of 726 means that the number is 726% of the base, which is an increase of 626%, just as 200 is 200% of 100 and represents an increase of 100% from a base of 100.
The two retirement systems for federal civil service workers use different adjustment systems.The Civil Service Retirement System (CSRS), which applies to workers first hired into federal service before 1984, provides a full COLA for all retirees and survivors.The Federal Employees Retirement System (FERS) covers workers hired on or after January 1, 1984, and others who voluntarily switched from CSRS to FERS.To constrain retirement costs, Congress placed restrictions on COLAs to FERS retirees.
FERS provides COLAs to retirees under the age of 62 only if they are disabled or are survivor annuitants.FERS retirees aged 62 or older receive a full COLA only if the CPI increases by 2.0% or less.FERS retirees receive a 2.0% COLA if the CPI increase is between 2.0% and 3.0%.
If the CPI increases by 3.0% or more, the FERS COLA is 1 percentage point less than the CPI.
This law was amended in 1973 by P.L.
93-66 and P.L.93-233 before the 1972 law went into effect.Federal Employees: Pay and Pension Increases Since 1969 Congressional Research Service increases of 15%, 10%, and 20%, respectively, in part because of concern about the number of elderly Americans living in poverty.These increases were intended not just to offset inflation in those years, but to raise the real level of benefits.The 8.0% Social Security increase effective in June 1975 was the first automatic inflation-related COLA.
The large increases in Social Security benefits that Congress provided periodically before the program was indexed to inflation have had a substantial effect on the cumulative index for Social Security shown in Table 1 because the table uses 1969 as the base year for the index.This may create a somewhat misleading impression if Social Security benefit increases are compared with the civil service retirement program, which was indexed to inflation in the early 1960s.For example, if 1975 were used as the base year for the index instead of 1969, the cumulative Social Security increase through January 2009 would be 299%.This is almost the same as the 284% cumulative increase in civil service retirement benefits during that period.The benefit adjustments in these programs are made by computing the average monthly CPI for the third quarter of the current calendar year (July, August, and September) and comparing it with the CPI for the third quarter of the previous year.
For example, the 5.8% Social Security COLA paid in January 2009 represents the increase in the average monthly CPI for July, August, and September of 2008 over the average monthly CPI for July, August, and September of 2007.The benefit increases are first included in checks issued in the month of January and take place automatically unless legislation is enacted to change them.In FY1986, the Gramm-Rudman-Hollings Act canceled civil service retiree COLAs.In 1994, 1995, and 1996, P.L.103-66 (the Omnibus Budget Reconciliation Act of 1993) delayed civil service nondisability retiree COLAs until April in order to achieve budget savings.
If consumer prices as measured by the CPI-W do not increase from the third quarter of one year to the third quarter of the next year, there is no COLA for annuities paid under CSRS or FERS.From the third quarter of 2008 to the third quarter of 2009, the CPI-W fell by 2.1%.Therefore, there was no COLA under either CSRS or FERS in January 2010.Because the price level fell between the third quarter of 2008 and the third quarter of 2009, the average monthly CPI for the third quarter of 2008 will remain the basis on which the COLA is determined for 2011.The average monthly CPI for the third calendar quarter of 2010 will be compared with the average monthly CPI for the third calendar quarter of 2008 to determine whether there will be a COLA applied to Social Security and civil service pensions in January 2011.Federal Civil Service Pay The Federal Employees Pay Comparability Act of 1990 (P.L.101-509) established a two-step system for setting and adjusting federal pay.Step one is an annual increase that applies uniformly to all white collar federal civil service employees covered by the general schedule (GS) pay system, the foreign service pay system, and certain pay systems for employees of the Department of Veterans Affairs.The second step comprises locality-based salary adjustments that vary by geographic area.
From 1969 through 1976, the adjustment for civil service retirement was 1 percentage point more than the rate of inflation.
See 5 U.S.C.
8340 and 5 U.S.C.
8462.Federal Employees: Pay and Pension Increases Since 1969 Congressional Research Service Uniform Nationwide Pay Raises The uniform nationwide annual adjustment to the general schedule pay scale is based on the average pay raise received by workers in the private sector from year to year.
The Pay Comparability Act specifies that the nationwide pay raises for federal white-collar GS workers are to be one-half percentage point less than private sector wage increases, as measured by the ECI.The increase is computed by comparing the ECI for the third quarter of the previous calendar year to the ECI in the third quarter of the calendar year before that.Thus, there is a 15-month lag between the measurement period and the effective date of the pay raise.On the basis of the 2.9% increase in the ECI from the third quarter of 2007 to the third quarter of 2008, the base pay increase for federal employees in January 2010 as determined under the Pay Comparability Act would have been 2.4%.
101-509 specifies that the annual national increase in basic GS pay rates will be equal to the percentage change in the ECI minus 0.5 percentage point, the law gives the President authority to limit pay raises through executive order in the event of serious economic conditions or a national emergency affecting the general welfare.Locality Pay P.L.101-509 authorized locality-based pay adjustments for civilian federal employees in specified occupations and geographic locations to reflect the salary levels of private-sector workers in similar occupations in those areas.The original objective of the civil service locality pay program was to bring federal salaries to within 5% of private sector salaries over a nine-year period (1994 through 2002).
Once pay parity is achieved, locality pay adjustments are no longer to be made unless the gap subsequently widens to more than 5%.Although Congress suspended the uniform nationwide civil service pay raise for 1994, it agreed to pay locality raises to civil service workers.
Since 1994, Congress has set aside P.L.
101-509 and specified in appropriations bills the amounts available for distribution each year as locality pay increases.On November 30, 2009, President Obama sent to Congress a legislative proposal for a 2.0% pay increase in 2010 for federal employees, but with no locality adjustments.On December 16, the President signed the FY2010 omnibus appropriations bill (P.L.111-17), which included a 1.5% across-the-board pay increase along with locality pay increases averaging 0.5%.On December 23, the President issued an executive order that set the locality increases.Federal Pay Raises for Within-Grade Step Increases
and Promotions The data in the column labeled federal civil service pay in Table 1 reflect post-1969 uniform nationwide pay raises and locality pay increases applicable to the governments overall pay scales for workers in GS positions, from GS-1, step 1, through the highest grade of GS-15, step 10.
As noted above, the government increases the federal GS pay scale periodically (usually once a year) to be competitive with wages and salaries paid by other employers.The pay increases in Table 1do not portray the total pay increases that any individual or group of individuals might have
The Bureau of Labor Statistics updates the ECI quarterly to measure changes in wages and salaries in private-sector, non-farm employment.
Pay raises for members of the Senior Executive Service are not prescribed by law.They are established by the President through an executive order.Thus, they may be the same as or different from other civil service pay raises.
The complete 2010 general schedule salary tables are online at .
Federal Employees: Pay and Pension Increases Since 1969 Congressional Research Service received.As federal employees move through their careers, they receive pay raises when they are granted a within-grade step increase or when they receive a promotion to a higher pay grade.Both step increases and promotions to higher grades are merit increases that are based on an individuals performance in his or her job.If a worker were to receive all within-grade step increases at the first point of eligibility without being promoted to a higher pay grade, it would take 18 years to move from step 1 of a pay grade to step 10.The pay increases between steps range from 2.5% to 3.3%.
Thus, although Table 1 indicates that GS pay scales increased by 265% between 1975 and 2010, the pay in 2010 of an individual