10% pay cut to go from contractor to govie? (transfer to, income)

[Carlingtonian]

Originally Posted by airjay75

Personally, I put more faith in the stock and bond markets than I do our Congressional leaders - I don't trust them at all to not continue cutting back benefits for federal employees....

Amen to that. Oh, and by the way, guess what percentage the members of Congress get for their retirement? (For us non-LE feds, it's 1.0% of your high three X the number of years of service for the first 20 years, and 1.1% for years beyond that.) They get 1.7% x number of years--giving themselves the same formula as federal law enforcement officers, air traffic controlers, and nuclear-materials couriers.

Funny, I never realized that sitting in an office on Capitol Hill was such a physically risky and demanding gig.

[kiplingif]

Originally Posted by JfromReston

Here is an article that details the current system and proposed changes.
Federal News Radio

Wow, 6.6% for all? I'd think a lot of people might look to go elsewhere if that comes to fruition.

Originally Posted by Carlingtonian

Folks hired under CSRS (before 1984) had 7% taken out--but they got a pension they could never outlive. Those of us hired pre-2013 also pay a total of 7% when you include SSI contributions, but obviously, we don't get that lifetime benefit.

As to the OP's dilemma: 2 years is more than enough time to find another gov gig, and after 1 year, you have time in grade, so you could apply for a GS-14. At the very least, you'd get an automatic raise to step 2. OTOH, if you're certain you could get another, better-paying contractor job after 1 year, maybe the risk is worth it to you.

Why do you say the CSRS was one that could not be outlived? Aren't FERS retirements ones that last until death as well?

Originally Posted by airjay75

The FERS pension system is basically a system that, if you put in 30 years of service, you will get a 1/3 income replacement during retirement (calculated based on the average of your 3 highest years of service, although Congress keeps trying to cut that too and change it to the highest 5 years of service). The more you have to pay for that defined benefit, the worse of a deal it is, and the more one might like to contribute that money instead to your own retirement account like a TSP and be in control of it yourself.

This is an overly simplified example, but assume your salary is 100k and is going to remain so for the next 30 years. You have a choice - contribute 3.1% of your salary for those 30 years in order to get a pension of equal to 33,000 per year or contribute that money to the TSP (or 401k) and invest as you see fit. If you assume an annual investment return rate of 7% or so, I believe the math comes out to around $310,000 in that account after 30 years (contributing on a monthly basis - I just used a quick investment calculator I googled, so apologies if it's wrong). But, actually, because you can do the TSP pre-tax (but not the pension contributions), you can contribute more to your TSP currently with the same take home pay and also have the benefit of compounding on that additional amount contributed. Tax situations differ, but let's just assume you could contribute 4% of your salary to your TSP on a pre-tax basis and have the same take home pay as contributing 3.1% on a post-tax basis. Again, assuming a 7% rate of return, you'll have over $400k in that TSP if you contribute 4% every year. (To add even more complexity, because FERS contributions are post-tax, and because your FERS contributions make up only a portion of the total amount paid for your pension - government pays the rest - a portion of your FERS pension will not be taxable income, i.e., the portion you paid, but the other portion, the portion the government pays, will be taxable income in retirement.)

Of course, there are a lot of variables in this. My main point is, there comes a point where I'd rather just have the money myself to put into the TSP or other retirement account, and be in control of my own destiny. That balance point is going to be different for different people because everyone has a different risk tolerance and has differing levels of faith in the stock and bond markets. Personally, I put more faith in the stock and bond markets than I do our Congressional leaders - I don't trust them at all to not continue cutting back benefits for federal employees, and, at 4.4% contributions required for the FERS pension, I seriously question whether the FERS pension is a good deal anymore. Of course, you don't really have a choice if you go into federal employment, but, it is certainly something to consider for those considering switches to the public sector, particularly when many (myself included) have to take (or have taken) substantial cuts in salary when switching to the public sector.

Thanks for the rundown. That is a lot of food for thought. It seems those with the FERS-special have a potentially much better deal. Maybe it is time to dust off the ol' resume and look to go FBI or something, haha.

They may continue to raise the contribution levels, but does anyone think they will cut payouts as well eventually? Like instead of paying 1/3 income replacement it becomes 1/4 or something? Burning the benefits at both ends would be terrible.

[ChristineVA]

Originally Posted by kiplingif

Wow, 6.6% for all? I'd think a lot of people might look to go elsewhere if that comes to fruition.

Why do you say the CSRS was one that could not be outlived? Aren't FERS retirements ones that last until death as well?


Thanks for the rundown. That is a lot of food for thought. It seems those with the FERS-special have a potentially much better deal. Maybe it is time to dust off the ol' resume and look to go FBI or something, haha.

They may continue to raise the contribution levels, but does anyone think they will cut payouts as well eventually? Like instead of paying 1/3 income replacement it becomes 1/4 or something? Burning the benefits at both ends would be terrible.

The payout will be reduced if they go to a High 5 versus High 3 calculation. I'm sure that will be their next step. Don't think it made it into this year's budget proposal though.

[Carlingtonian]

Originally Posted by kiplingif

Why do you say the CSRS was one that could not be outlived? Aren't FERS retirements ones that last until death as well?

I admit I wasn't very clear there. Yes, you're right that the FERS benefit lasts till you die. But it's a smaller payout (1%-1.1% for most) than CSRS was/is, because it's meant to be only one leg of the three-legged stool. SocSec is also till death, but ignoring the fears of its eventual insolvency, it's a very small leg. And then the third leg, TSP, is a finite amount of money.

Contrast this with CSRS, which gave its participants a till-death benefit that would be enough to live on. According to OPM:

First 5 years of service: 1.5 percent of your high-3 average salary for each year
Second 5 years of service: 1.75 percent of your high-3 average salary for each year
For all years of service over 10: 2 percent of your high-3 average salary for each year.

Up to a max of 80% of your high three, PLUS payout for sick leave (which we FERS people don't get).

[JfromReston]

Originally Posted by Carlingtonian

PLUS payout for sick leave (which we FERS people don't get).

OPM recently changed the sick leave "payout" for FERS. We now get additional creditable service for the amount of sick leave we have when we retire. The formula is generous allowing for a full day of service for every 6 hours of sick leave.

http://www.usgs.gov/humancapital/pb/...RSIONCHART.pdf

[kiplingif]

Considering all days are dropped at the end of computing, it seems less generous than on the surface. But, an improvement over nothing, for sure.

[Bigfoot424]

Originally Posted by Gzagenius

I've been offered a position as a GS13 step 1 (they aren't entertaining higher pay). This is a not to exceed 2 year position and is a 10% pay cut from my current position as a contractor. Problem is that my current contract hasn't been renewed and if it does it'll only be for 1 year. I also don't know if the renewal, if won, will result in a pay cut for the contractors. I'm not sure what to do. I'm afraid that taking the pay cut as a govie is taking a step back, especially if I ever decide to go back to the contracting world after the 2 years. I don't know how likely it is that the job will roll into something permanent. I think if this was a permanent position I would be leaning towards taking it because I know that eventually I would work my way up and have stability, but I'm really on the fence because it isn't permanent. What are your thoughts?

I just did what you're discussing. Retired from one job after 30 years then became a federal contractor for one then a 2nd agency. The 2nd agency offered me an FTE position and even though I took a pretty big pay cut I felt it was the right thing to do. Mine isn't a 2-year position so I don't have that issue to worry about but like someone else has stated it will likely be extended or become a permanent position. For me it was easy to decide to leave the contracting world.

[JfromReston]

Originally Posted by kiplingif

Considering all days are dropped at the end of computing

Yes - anything less than a month is dropped. When I had retirement training they stressed choosing a retirement date that resulted in the fewest dropped days. The worst is when you leave 28-29 days on the table. If you would have just worked a couple more days your retirement would have been increased by a month of service for the rest of your live.

[Carlingtonian]

Originally Posted by JfromReston

OPM recently changed the sick leave "payout" for FERS. We now get additional creditable service for the amount of sick leave we have when we retire. The formula is generous allowing for a full day of service for every 6 hours of sick leave.

http://www.usgs.gov/humancapital/pb/...RSIONCHART.pdf

Good to know; thanks!

[airjay75]

Originally Posted by kiplingif

They may continue to raise the contribution levels, but does anyone think they will cut payouts as well eventually? Like instead of paying 1/3 income replacement it becomes 1/4 or something? Burning the benefits at both ends would be terrible.

I don't put anything past Congress when it comes to federal employees. The only proposals I'm aware of that currently would affect payouts are, as ChristineVA mentioned, the change from high-3 to high-5 to calculate the amount of your pension, and also changes to the cost of living adjustment calculations that ultimately result in decreased cost of living adjustments. But, the thing is, for people like myself who will likely be working another 30 to 40 years, that is a long time for Congress to come up with other proposals. State and local public employees have seen their payouts reduced after a lifetime of service because their municipalities simply didn't have the money to pay them. I think that's less likely with the FERS pension system because it's design is a lot different - FERS does not have the so-called "ponzi scheme" problem that plagues Social Security and many pension systems. The money we pay in for a FERS pension is not used to fund current retirees like those systems. But, with Congress, who knows - I don't think I could ever say with confidence that they won't cut pensions in the future. One party never seems to find a cut to federal employees they don't like and the other party seems all too willing to sell out federal employees if they can extract compromises that fund their other pet causes.