Year in Review 2013

Federal Workplace in 2012:

The Year in Review

The federal workforce played an uncomfortable leading role on the 2012 political stage as disputes involving the size, cost and reach of the government turned national attention to how large the workforce should be and what level of pay and benefits its employees should receive.

While those issues are perennials, the number and scope of the proposals targeting federal workers and the intensity of the debate reached levels not seen in recent times. That was due not only to the elections but also to the pressures of continued high unemployment in the overall economy and deep federal deficits.

Early in the year the main focus fell on employee contributions toward retirement benefits. An increase was enacted but only applying to those hired in 2013 and beyond; however, the threat of increasing contributions by all employees remained. In the spring the House—but not the Senate—passed several bills calling for such increases; the House also backed extending the 2011-2012 salary rate freeze an additional three years and cutting the workforce by 10 percent through attrition. Many Republicans, including the presidential ticket, incorporated those ideas into their campaigns.

By mid-year the Obama administration and Congress had deadlocked on fiscal 2013 spending and they agreed to generally extend existing policies through March— in the process continuing the salary rate freeze at least that long. But there was no agreement on preventing widespread automatic cuts in federal spending scheduled to start in 2013 under a prior budget law.

Just before Congress took its pre-election recess, the White House warned of the potentially severe effects on a host of government operations of that “sequestration”— some $110 billion, split about equally between defense and domestic programs, each year for a decade. It concluded that the cuts would impact the workforce as well, although it made no projections of potential layoffs, furloughs, or other cost-saving steps.

Several outside studies meanwhile warned of huge impacts on federal employees and the economy in general of those cuts, combined with tax increases also scheduled to occur in 2013 unless prevented. However, Congress recessed in late September for the campaigns without acting on the “fiscal cliff” or on a variety of other pending issues.

The elections left the political landscape of Washington essentially the same, with President Obama re-elected, Republicans controlling the House and Democrats control-ling the Senate but with a GOP minority large enough to block bills by using the filibuster.

During the post-election session, more proposals affecting pay, benefits and job levels were circulated, and the House once again voted for its previous package of changes. A law meanwhile was enacted to cut Defense Department civilian and contractor employment by about 5 percent over five years.

As the calendar approached the fiscal cliff, agencies began making plans for sequestra-tion. Late in December the administration warned of the potential for furloughs and layoffs but it told agencies to look elsewhere for savings first, and stated that personnel actions would not happen for weeks if not months into the new year.

A last-minute agreement enacted on New Year’s Day revised many tax policies while delaying the sequester to early March, buying more time to decide whether to let it take effect or to prevent it by finding offsetting savings. That action essentially left to the new Congress an issue that had proven too difficult for the 2011-2012 Congress, while keep-ing many of the same cost-cutting proposals on the table for 2013.

Pay

The year started with President Obama proposing to thaw the freeze that had left federal salary rates at 2010 levels for 2011 and 2012. The White House budget plan recommended a 0.5 percent across-the-board raise, an amount that while largely symbolic was seen as a step toward restoring the traditional practice of granting a raise each January.

However, even that quickly met opposition, with the House voting in a stand-alone bill to prevent a 2013 raise, and then voting as part of a budget outline to continue the freeze through 2015. Other freeze proposals arose in the context of bills seeking to free up money for other purposes, such as defense spending.

The Senate rejected a freeze extension in an amendment to an unrelated bill, but the House started crafting annual appropriations bills reflecting an assumption that no raise would be paid. The White House and federal employee groups continued to advocate for an increase.

Because the appropriations bills were far behind schedule, it became clear during the summer that temporary spending authority would be needed to carry the government past the October 1 start of the new fiscal year. In early August leaders negotiated a six-month extension, generally keeping spending at prior levels. The President soon consented to a continued salary rate freeze through that measure’s expiration in late March 2013, but called for a 0.5 percent raise to be paid afterward.

The result, after the measure was enacted in September, was that rates remained frozen for at least the first three months of 2013, with a decision regarding the rest of the year left to be made in early 2013. Employee organizations pushed for enactment of a raise retroactive to January 2013, but an extension of the freeze for the full year was at least as likely, given the political and budgetary realities.

Meantime, employees remained eligible for raises on promotion, as a performance reward, and on successfully completing waiting periods for within-grade raises, for those in grade-and-step pay systems.

Those events played out against a backdrop of heated disagreements over how federal pay compares with that of the private sector. Unions and many Democrats pointed to government data showing that federal workers are underpaid on average by more than 20 percent, while Republicans cited studies by conservative think tanks concluding that the advantage is on the federal side by around that same percentage— and more if benefits were taken into account.

The nonpartisan Congressional Budget Office plowed a middle ground by reporting that pay overall is about comparable on average with a 2 percent advantage to federal employees. However, federal workers with a high school education or less are substantially ahead while those with advanced college degrees are substantially behind, CBO concluded.

A later report from another nonpartisan entity, the Government Accountability Office, did not attempt to conduct a pay comparison but rather found the methods used in the other studies varied in fundamental ways and that even those using similar methods used differing sets of data. It concluded that no one study—including the government’s own report that by law is supposed to be used in setting raises—is definitive. Rather than serving as a tie-breaker, GAO’s report essentially left the debate to continue along the same lines.

In mid-October, the government’s own annual assessment put the pay gap at 35 percent on average in favor of the private sector, up by about nine points in just one year. With a continued salary rate freeze into 2013 already having been decided, the data mainly served to stir up the pay dispute again, just before the elections.

Retirement

Like pay, the federal retirement program was caught up in political and fiscal debates. That process started with the Obama administration’s budget that repeated a proposal it first raised in late 2011, to increase the required employee contributions toward retirement by 1.2 percent of salary, phased in over three years.

House Republicans soon moved to go even higher. A 1.5 percent of salary increase over three years was considered early in the year to help pay for an extension of unemployment benefits. Ultimately, that measure ordered a 2.3 percent of salary increase in contributions from those hired into government in 2013 and later who didn’t have at least five years of prior federal service—a new category of retirement coverage that came to be called “revised annuity employees.”

Proposals potentially affecting current employees continued to circulate, however. The House-passed budget outline recommended setting employee and agency contributions at equal levels, meaning about a 6 percent of salary increase for employees. A later House -passed bill designed to substitute for the looming sequester endorsed a five percentage point increase over five years. Both of those measures stalled in the Senate.

The idea of raising contributions resurfaced late in the year in proposals to head off sequestration—with the House passing another bill calling for a five-point increase. Also proposed was basing cost of living adjustments in federal retirement and many other programs on the “chained” consumer price index measure that typically produces a figure about half a percentage point less than the traditional measure.

The later enactment of the law delaying the sequester set those proposals aside, if only for a short time. That law meanwhile allowed Social Security payroll taxes to revert to their normal level after being lower by two percentage points for 2011 and 2012.

Also on the table was the “special retirement supplement” paid to those under the Federal Employees Retirement System who retire before age 62. The House several times endorsed ending that benefit for new retirees except for those subject to mandatory retirement, but the Senate never took up the bills containing that language.

One way in which the emphasis on deficit control worked in favor of employees was passage of “phased retirement” authority—allowing agencies to offer retirement-eligible employees the option of switching to part-time work while drawing proportion-ate salaries and annuities.

The idea, which had been proposed for several years, gained bipartisan support but did not move to enactment until CBO certified it as saving money, through reduced retirement payments and continued collection of payroll taxes from people who otherwise would have retired fully. Congress then attached the plan to a student loan bill enacted in mid-year (P.L. 112-141).

However, carrying out the policy required rules addressing numerous issues involving the treatment of benefits, survivor rights, required deposits and other technical matters. Thus, phased retirement was not expected to be actually available until some-time in 2013.

Meanwhile, the inflation count used for calculating retiree cost of living adjustments produced a 1.7 percent COLA for January 2013, with the payout being the same for both FERS and Civil Service Retirement System retirees since the count ended below 2 percent.

Other Benefits

In mid- year OPM finalized rules to carry out several Obama orders to expand, within the limits of existing law, benefits for same-sex domestic partners who meet certain standards. The most significant change was to create a presumption that qualifying partners are eligible for an “insurable interest” survivor annuity. The rules also affected some sick leave policies, plus certain allowances and hiring authorities that apply in limited circumstances.

Meanwhile, rules were proposed, but not finalized, to make a qualifying partner’s children—although not the partners themselves—eligible for coverage under the Federal Employees Health Benefits program and Federal Dental and Vision Insurance Program. A bill to extend full insurance and survivor benefits to same-sex partners cleared a Senate committee but then stalled.

OPM made only minor changes in the FEHB for the 2013 plan year, once again emphasizing wellness programs, prescription drug controls and other initiatives designed to hold down costs. On average, enrollee premiums rose by 3.7 percent, once again in line with other large employer-sponsored health insurance plans, and once again with wide variation among carriers.

The life insurance, long-term care insurance and vision/dental insurance programs remained largely stable. However, the maximum amount for health care accounts under the flexible spending account program was cut in half for 2013, to $2,500, under terms of the 2010 health insurance reform law.

As part of an ultimately unsuccessful postal reform measure, the Senate endorsed tightening of injury compensation rights government-wide, including switching many beneficiaries to regular retirement annuities once they reach a standard eligibility age.

Thrift Savings Plan

The TSP’s main focus during the year was on finalizing “Roth”-style investing, which had been authorized in a 2009 law. That type of investing essentially reverses the TSP’s traditional design, with investments made on an after-tax basis and withdrawals of that money being tax-free, as are withdrawals of associated earnings if certain conditions are met.

The TSP started accepting Roth investments in May, although for most non-postal employees, Roth investing was not available until several months afterward because their agency payroll systems weren’t ready on time. The TSP meanwhile concentrated on explaining Roth investing and how it compares with traditional investing.

Around the same time, the TSP revealed that a 2011 data security breach had been discovered, in which personal information of some 123,000 participants had been stolen from a contractor. The TSP flagged those accounts for scrutiny, beefed up security, and offered free credit monitoring to affected investors, among other changes.

However, the agency took unaccustomed criticism from Capitol Hill for not following standard government procedures in a security breach, as well as criticism from investors upset that they weren’t notified until more than a month after the TSP learned of the breach from the contractor. The TSP said it needed the extra time to identify which account holders and information were affected, and put new notification procedures in place.

The TSP also started to explore using an authority granted at its discretion under the same 2009 law, to create an investment “window” allowing participants to invest in outside funds such as mutual funds through their TSP accounts. The consideration of that authority, which the TSP had set aside while it concentrated on establishing Roth investing, continued into 2013.

Meanwhile, the House but not the Senate endorsed allowing employees to invest in the TSP the lump-sum payments they receive for unused annual leave when separating for retirement or other reasons.

As part of the fiscal cliff law enacted at the turn of the year, tax-favored retirement savings plans including the TSP gained authority to allow investors to change traditional balances to Roth balances, although they would have to pay taxes as if the amount had been withdrawn. The TSP began studying the option and was to make a decision during 2013 regarding when, or even if, it would make such conversions available.

Management Initiatives

The Obama administration continued to push several hiring initiatives, including steps to speed up and simplify the job application process. Progress was reported, although the initiative lost some of its urgency as agencies slowed hiring due to spending limits and the prospect of even tighter budgets to come.

The White House also continued to push prior initiatives encouraging the hiring of veterans, the disabled and minorities, especially Hispanics. It also finalized changes to internship and developmental programs for students and recent graduates, and emphasized re-employment rights for employees returning from mobilization to active military duty.

Meanwhile, OPM continued to work on a longstanding issue at the other end of the employment pipeline, delays in processing retirement applications. The agency assigned more employees to the task and changed some of its internal procedures, reducing its backlog. OPM further worked with agencies to make sure applications were more complete and accurate before sending them to OPM for processing. However, some applicants continued to experience lengthy delays and/or interim payments much lower than their ultimate entitlement.

OPM also addressed longstanding concerns about performance evaluations for Senior Executive Service members by ordering agencies to use more standardized ratings. The revisions included ending the option for using four ratings levels by requiring five; aligning evaluations with characteristics expected of all senior executives; and requiring that agencies remove from the SES those who are low-rated over a period of years. OPM said the changes would make ratings more consistent and facilitate movement of executives among agencies.

Agencies were allowed to phase in those changes through 2012 and 2013 as they were ready. Several bills to make further changes including beefing up developmental programs meanwhile were offered in Congress but did not progress.

Initiatives to encourage telework continued, especially in the wake of autumn Hurricane Sandy that closed many federal offices in and around major Eastern cities for days. However, reports continued to show low rates of remote working, at least on a formal basis, with management resistance remaining the major barrier.

On the labor front, the American Federation of Government Employees during the summer reached agreement with the Transportation Security Administration on the first negotiated contract at the agency, covering some 44,000 screeners and associated employees. The main change involved revising the agency’s pay-for-performance system by de-emphasizing certification tests in favor of actual on-the-job performance. Other provisions affected uniform policies and scheduling of shifts and annual leave. In the fall, the membership voted in favor of the contract amid concerns that a Romney administration would void it.

Also uncertain through much of the year was the future of a labor-management council the Obama administration created by a 2009 order seeking to improve relations and address issues before they grew into formal complaints. Pilot projects in several agencies continued to test another initiative under that order, widened bargaining, although an interim report found those tests had achieved few solid results. Obama’s victory assured that both initiatives would continue.

Other Issues

Financial Disclosures—In April Congress enacted the Stock Act, which although mainly directed at potential conflicts of interest by members of Congress and their staffs, also included provisions affecting many senior federal employees. One of those required that the publicly available financial disclosure reports filed by nearly 30,000 persons, most of them careerists, be posted online by their agencies beginning in September.

Affected employees and their organizations argued that such ready access to those forms would increase the risk of identity theft and other crimes against them, and a law-suit was filed. Congress delayed the posting requirement until October and then again until early December, while allowing its own disclosure forms and those of certain top-level political appointees to be posted.

The second delay also ordered an outside study of the impact of posting the larger group of forms online; with that study not due until late March 2013, yet a third delay, until April 15, was enacted (P.L. 112-207).

Those events did not affect other changes for all public financial disclosure filers that took effect. One generally requires them to report certain personal financial transactions within a month rather than annually, a requirement that later was extended to spouses and dependent children. Another imposes new requirements on those involved in discussions that could lead to a job or other compensation from outside the government.

Whistleblower Protections—After many years of similar proposals, late in 2012 the Whistleblower Protection Enhancement Act was passed (P.L. 112-199), expanding what types of disclosures are protected, strengthening rights to challenge retaliation, and including TSA screeners in the protections.

For many years the measure had been hung up by disputes over provisions aimed at allowing access to federal jury trials in certain circumstances and extending standard protections to employees in security-related positions. Late in the year an agreement was reached to drop those provisions and soften several others, clearing the way for passage.

The White House then issued a memo allowing intelligence community employees to have personnel actions against them, including those affecting their access to classified information, reviewed by their agency inspector general and then by a multi-agency IG panel in certain circumstances, although management still would have the final decision.

Hatch Act—Also after years of consideration, the first overhaul in nearly two decades of Hatch Act political activities restrictions was enacted (P.L. 112-230). For federal workers, the main change was to allow for lesser disciplinary actions when violations are found. Also, restrictions were loosened for state and local employees who are covered by the law because their programs receive federal funding.

The proposal had bogged down over potential further changes, including attempts to clarify the line between on-duty versus off- duty activities that have been blurred by social media and personal electronics since the law was last reformed. As with the whistle-blower law, dropping those provisions cleared the way for final passage late in the year.

Travel and Awards—In the context of such a highly charged political year, one of the major national stories involving federal employees was especially ill-timed: revelations of wasteful spending on travel, conferences and employee awards. The first scandal involving the General Services Administration was followed by findings of similar misspending at other agencies, most notably the Veterans Affairs Department. The scandals cost some political appointees their jobs, but investigations showed that career employees were mostly responsible.

The Office of Management and Budget responded with new policies cracking down on such spending. Also, numerous proposals were introduced in Congress to limit awards, conferences and general travel-related spending; such language was written into several spending bills that were pushed off to 2013. The scandals however did help move to completion a longstanding proposal to tighten controls on government-issued travel and purchase charge cards, including new requirements to discipline employees for misusing them. That was enacted as P.L. 112-194.

Postal Reform—Continuing financial losses by the U.S. Postal Service spurred numerous reform proposals, including separate bills in the House and Senate to downsize operations and a plan by USPS itself that also included breaking off from FEHB and creating its own health insurance program.

While the Senate passed its bill in the spring, the House delayed action, in part because of concerns about reducing delivery days and about closings of processing facilities and smaller post offices. USPS offered several rounds of early retirement and buyouts to slim down. In August and again in September it defaulted on payments of more than $5 billion each to prefund future retiree health care costs, an obligation that the various proposals sought to ease or eliminate.

The defaults had no immediate impact except to bring renewed attention to the dire state of postal finances in advance of the post-election congressional session. Even that was not enough to push legislation to enactment, however. As postal reform once again was left for the future, USPS warned that without legislation it would have to take aggressive cost-cutting steps on its own.

Other Initiatives—The House passed legislation to make persons who are seriously delinquent in paying their federal taxes—generally meaning if liens have been issued— ineligible for federal employment unless they qualified for exceptions such as making payments under an installment agreement. However, the Senate did not take up the bill.

Similarly, the House, but not the Senate, passed a bill allowing for senior officials to be put on paid or unpaid suspension pending investigations into allegations of misappropriation of funds or other misconduct.


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