Retirement ripoff

For whose retirement are you saving?

With today’s economic conditions, many Americans are finding it difficult to save for retirement. Oh, there’s Social Security of course, the government’s Ponzi scheme forced retirement savings plan, but the threat of insolvency hangs over the heads of Americans like a virtual sword of Damocles.

While Americans struggle to sock away funds for their own later years, they are forced by government not only to pay into the Social Security system from which Congress has looted many times over, but also into the retirement fund(s) for Congress itself. Yes, Congressmen receive “pensions” upon retirement, and some have even called for pulling the pensions of politicians found philandering.

This is an interesting, and rather frustrating, topic, as the Constitution does not provide for a congressional pension at all. According to the Constitution, “the Senators and Representatives shall receive a Compensation for their Services, to be ascertained by Law, and paid out of the Treasury of the United States” (Article I, Section 6, Clause 1). That is all that the Constitution has to say about representatives’ remuneration.

Even at that, in the days of the founders, senatorial salaries were generally per diem because Congress did not meet often nor did they spend much time in Washington DC, because travel was more difficult, they understood that their responsibilities were few and defined, and holding elected office was never intended to be a career.

That notwithstanding, politicians now spend decades in office collecting an annual salary, and, since 1920 (imagine that, shortly after the establishment of the income tax, but prior to the institution of the Social Security Administration - more of government looking after itself before the people), are enrolled in a retirement plan. The original plan, titled the Civil Service Retirement System (CSRS) still exists, and until 1984, under the CSRS, Congressmen paid no Social Security tax and were not eligible for Social Security benefits. In 1987, a new retirement plan, the Federal Employee Retirement System (FERS) was introduced to replace CSRS for federal workers hired in 1984 or later.

In a discussion, it was pointed out to me that these aren’t true pensions, that Congressmen must contribute, so it’s more like a 401k (realize that Congress’ own website calls them “pensions”). To a degree, that is not incorrect (yes, a double-negative, intentionally), but they are not like any 401k plans I’ve ever seen or in which I’ve participated. Let’s look at a few numbers (only a few because, as with anything run by the government, the calculations are comedically complex). Since it’s been in place for about 40 years now, though there are some Congressmen still in office who may be covered under CSRS, we will focus on FERS.

Members of Congress* covered under FERS prior to December 31, 2012 contribute 1.3% of their salary to FERS. Using $174,000 as a baseline for their salary means they contribute $2,262 annually to their retirement accounts. Congress (meaning, we the people via our taxes) contributes 22%** annually, or $38,280 to their retirement accounts. Now, I’ve held a few jobs, and I know people who have been working a lot longer than me, but I’ve never heard of a company providing that kind of 401k “matching.” The congressmen put in a pittance of their salary and receive almost another full 1/4 of their salary in their retirement accounts from us. Most normal employers will provide an even match (or sometimes only a partial match) on what the employee contributes, and it is usually limited to matching on contributions somewhere between 4% and 6% of the employee’s annual base salary.

For Congressmen first covered January 1, 2013 through December 31, 2013, Congressmen* contribute 3.1% of their pay and Congress (we the people) contributes 14.2%**. For those first covered after December 31, 2013, Congressmen* contribute 4.4% of their pay, and we the people contribute 15.2%**.

While these latter numbers start moving a little more toward what one might see in the private sector for a 401k, they are still far out of balance.

One might think this is bad enough, but, there’s more. In addition to this “pension,” under these retirement systems, a “Thrift Savings Plan” is also available to federal employees. This is more like a 401k with limitations similar to those of a private IRA. As of 2023, a member could invest up to $22,500 per year in a TSP. Under FERS, regardless of whether the member contributes, we the people put up 1% of the member’s base pay, and we the people will match the member’s contributions up to 5%.

So, we get to subsidize the base pension (FERS) by matching anywhere from 14% - 22%**, and then we also get to subsidize their TSP with another 5%. I don’t know about you, but I’d love private employers to be so generous!

Oh, did I mention that they are also required to participate in Social Security (I believe I did), at a rate of 6.2%, just like we the peons people. And I would be willing to wager that we the peons people are responsible for the 6.2% that any other employer pays as well.

I could go on and on about the calculations for their actual pension payouts, but I don’t think that’s really necessary at this point. If we take the “median” of 15.2% contributions to FERS, add 5% matching for the TSP, and throw in 6.2% for Social Security, based on a salary of $174,000 for 535 members of Congress, we the people are contributing $24,575,760 annually to Congress’ retirement fund. Granted, in the grand scheme (heh…scheme, scam) of money laundering wasteful government spending, this seems a pittance, but it is still our money.

It is interesting that this was originally implemented because it was believed that such a retirement plan:

would contribute to independence of thought and action, [be] an inducement for retirement for those of retiring age or with other infirmities, [and] bring into the legislative service a larger number of younger Members with fresh energy and new viewpoints concerning the economic, social, and political problems of the Nation.

U.S. Congress, Senate Special Committee on the Organization of Congress, Legislative Reorganization Act of 1946, report to accompany S. 2177, 79th Cong., 2nd sess., May 31, 1946, S.Rept. 79-1400 (Washington: GPO, 1946), p. 9.

At least that is what was alleged. Of course, we know that this has contributed neither to independence of thought and action nor to retirement at a reasonable age. But as with all failed government programs, there is neither desire nor due cause (on the part of our best-and-brightest elected representatives) to end this one in particular. Never mind that most of these people go in on an annual salary of less than $200,000 and come out millionaires who have no need of the pensions we provide them.

For this last reason, I don’t think ending them will have any effect either, but at least if there were no pensions, we the people could keep a little more of our money and maybe save more for our own retirements rather than funding pensions for people who perpetually plague our polity.

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*While this all focused on members of Congress, all federal employees are eligible to participate in these pension plans, and all receive “matching funds” (I cannot in good conscience call the imbalance between employee and employer contributions “matching” without putting it in quotes). Considering the number of people currently under federal employment, we the people are contributing far more than the $24.5M estimated above just for our representatives’ pensions.

**Federal employees who are not Congressmen in many cases make different contributions, and their employing agencies also contribute different amounts than those for Congressmen. For instance, federal employees covered by FERS prior to December 31, 2012 contribute only 0.8% of pay and their agencies (we the people) contribute 16%, though for congressional employees who are not Congressmen, the employee contribution is 1.3% and the “employer” “match” is 23.9%. More numbers and detail can be found here: https://www.congress.gov/crs-product/RL30631#ifn11