- The Washington Times - Tuesday, May 27, 2003

An extended spell of deflation — where prices go down, not up — will trim the January cost-of-living adjustment (COLA) for people who get civil service retirement benefits, retired military pay or Social Security payments.

Just last month, the decline in prices dropped the projected January 2004 retiree COLA from 2.1 percent to 1.8 percent. Any extended period of deflation also could cut into whatever pay raise federal civil servants get in January.

Retiree COLAs are fixed by formula and law. If the inflation rate goes up, which is the norm, they get a catch-up adjustment the first of each year. Most private pension benefits are frozen at retirement, and COLAs are something private-sector retirees drink, not get.

Federal pay raises have little, if anything, to do with inflation. But deflation could be another matter.

The 2 percent that the Bush administration has projected for feds next year could be whittled back — as an economic gesture — if the economic picture gets bleaker. And congressional Democrats who managed to boost pay raises proposed by both Presidents Clinton and Bush would have a tougher time if deflation persists.

Flexible spending accounts

Unless you have perfect teeth, perfect eyesight, perfect health and children who can take care of themselves during the day, you may be a candidate for a flexible spending account.

Government-style FSAs come in two varieties: a medical FSA (an amount designed by you from $250 to $3,000), and a child care FSA ($250 to $5,000). Both are funded by you using pretax dollars. That lowers your tax bite and permits you to pay for expenses not covered by your regular insurance.

Many feds had hoped to use the FSA money to pay for dental benefits that are not covered (or not covered very well) by federal health plans, or most private-sector plans for that matter.

The federal FSA program is still being fine-tuned. Among other things, Congress wants it to drop annual administrative charges of up to $75 for workers with accounts. Another problem is not all agencies are ready to make the payroll changes needed to deduct and process the accounts.

Officials say the program will begin by July 1, but not all agencies — including Defense, Energy, the White House and even the House of Representatives — will be on board until at least September. Some others won’t offer FSAs until 2004. Expenses you incur before signing up for the FSA program, which you can’t sign up for now, cannot be paid out of your FSA account.

End civil service as we know it?

The Defense Department has persuaded the House to let it set up a go-it-alone personnel system and now is seeking Senate approval of a plan.

Backers say it’s the greatest thing since sliced bread. Opponents claim it smells like 4-day-old fish.

Whether you buy the bread or fish description, one thing is sure: If Defense succeeds, other agencies will demand, and probably get, the right to have their own system, outside the 100-year-old federal civil service system.

What the Department of Defense wants is this:

• A separate pay system for managers and supervisors. This was tried before governmentwide and it resulted in many jobs being renamed or reclassified to put them in, or take them out, of the supervisory-management category.

• Setting up a pay banding system that would replace the current 15 General Schedule grades by putting each employee into one of five pay bands with a wide range of salary options.

• Use buyouts and early outs, which are already authorized, to encourage selected employees to retire and permit Defense to avoid or redress “skills imbalances” resulting from regular retirements and changing mission needs.

• Give Secretary Donald H. Rumsfeld authority over civilian personnel matters similar to what he already has over military personnel.

• Set up a pay-for-performance system similar to a separate proposal worked up by the White House that would cover all non-Defense agencies.

Under performance pay, civilian feds would be given token pay raises each January. Any additional raises they received would be based on performance, as judged by their bosses.

Money for the performance pay raise, which could be as high as 7 percent, would come from a pay pool that otherwise would have been used for across-the-board raises for all civilians.

Mike Causey, senior editor at FederalNewsRadio.com, can be reached at 202/895-5132 or [email protected]

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