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Cliff Guffey,
President |
Ask the President Archives
Below is a response by former APWU President William Burrus to a question posed online by a union member. Other questions cover a wide range of topics, from contract enforcement to union governance.
Question:
Why are retirement annuities calculated using the “high-three” formula? Do you think the formula will ever be reduced to “high-two,” “high one,” or perhaps just the final year of employment?
Why does the pay-for-performance program apply only to EAS personnel? Shouldn’t the rank-and-file, many of whom make their supervisors look good, share in the wealth?
Name Withheld, New York Metro Area Local
President Burrus:
Thank you for accessing the APWU Web site; hopefully you are finding useful information.
Regarding the use of the “high-three” formula for computing postal employees’ retirement annuities:
The Postal Reorganization Act of 1970 established the legal framework for the operation of the Postal Service. The law granted employees the right to form and join unions; authorized the right to bargaining collectively, and made provisions for employee health benefits and retirement.
Postal workers, who had Civil Service status as employees of the old Post Office Department, were covered by the Civil Service Retirement System (CSRS) from its inception, and remained part of the system after the law was enacted. Postal and federal employees hired after Dec. 31, 1983, however, are covered by the Federal Employees Retirement System (FERS), which replaced CSRS.
Both retirement systems utilize the high-three formula to calculate retirees’ annuities: The monthly payments to retired employees are based on a percentage of the average of employees’ wages during their three highest-earning years.
It was the opinion of Congress that use of the high-three formula struck an adequate balance between the cost to the government and the benefit to retired workers. An increase or decrease would have major budgetary significance.
A reduction in the formula from high three to high two would significantly increase the financial liability of the federal government and the Postal Service to pensioners. Using an employee who retires in April 2007 as an example, the difference would be as follows:
High-Three Formula |
High-Two Formula |
Salary April 2004 $44,000 |
|
Salary April 2005 $45,200 |
Salary April 2005 $45,200 |
Salary April 2006 $46,800 |
Salary April 2006 $46,800 |
Total $136,000 |
Total $92,000 |
Average = $45,333 |
Average = $46,000 |
Assuming the employee earns the maximum retirement benefit of 80 percent of salary, the annuity would be $36,266 using the high-three formula, and $36,800 using the high two.
This would represent an increase in the annuity of $534 per year for every annuitant. Over a span of 25 years and assuming cost-of-living increases of 2.5 percent per year, the retiree would receive approximately $18,240 more, without any additional contribution to cover the outlay.
With more than 2 million federal and postal employees, the additional cost to the federal government and the Postal Service would be in the billions of dollars.
Given the significant federal deficit that the federal government is presently experiencing, it is highly unlikely that Congress and the president would add this additional liability.
In fact, conservatives in the House of Representatives have endorsed a proposal to change the formula from the high three to high five. The intent is for the government to achieve the corresponding savings. Of course, if this proposal were to become law, retirees covered by the new formula would suffer a corresponding decrease in their annuities.
Regarding your second question, the APWU has consistently opposed the concept of “pay for performance.” Our pay system is based on the principle that employees should be paid the negotiated wage for work performed.
Performance pay invites favoritism and inserts subjective analysis into the pay system. We do not envy EAS employees and supervisors who are paid on the basis of their perceived performance. On occasion they receive more than APWU employees; but over an extended period, our negotiated increases, including cost-of-living adjustments, far exceed those received by employees covered by performance-pay plans, and we are not subject to evaluation by managers.
Dec. 12, 2005
