The budget that Congress signed into effect in the last moments of 2013 legislative session substantially changes how new federal employees will fund their pensions, according to govexec.com
The 2013 Bipartisan Budget Act increased pension contributions for federal employees hired after Jan 1, 2014 to 4.4 percent of their salaries, meaning the Federal Employment Retirement System now has three tiers of contribution rates. Employees hired after 2012 pay in 3.1 percent, and all other employees contribute a paltry 0.8 percent.
If that seems unfair, new employees may now have to go into debt to their pension programs because of bureaucratic inefficiency. The Obama Administration previously announced it would delay the higher deductions until the software updates throughout federal agencies can account for the new three-tier pension system, the news site said.
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The problem: many agencies have been dragging their feet, and won't have the software updates in place until the end of July.
New workers contributing at the higher rates will owe retroactive back payments to their pension programs once the new software is implemented. If you're a new employee in a federal agency that hasn't implemented payroll updates, you may end up owing up to $1,300 to your pension fund.
Debts of up to $25 increments will be drawn from each pay period until the shortfalls can be accounted for. The Defense Accounting and Finance Service has sent employees a letter letting them know the extent of their debt. The Agricultural Department's National Finance Center, which covers payroll services for more than 650,000 employees, issued guidance to employees saying they will "receive a bill for the monies owed of the employee portion of retirement funds not previously collected," according to a communication authored by the National Finance Center (NFC). The NFC determined that 4,663 employees across federal agencies will be required to shell out for back payments to their pension programs.
It is not clear if the Obama Administration intended for new employees to effectively go into debt to their pension programs when it insisted new increased withdrawals not be made until all software updates were complete, reported govexec.com.
The American Federation of Government Employees has vocalized their concerns, requesting the Obama Administration relieve employees of the retroactive payment obligations, given that they result from inefficiencies of the payroll providers and are no fault of the employees themselves.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
