A Better Way to Pay Federal Pensions

A Better Way to Pay Federal Pensions

The federal government has a long tail. But to find it, you need to look underground.

There are about 2.5 million people getting federal retirement benefits. Some 2 million of them have pensions, the rest (those hired since 1984) have annuities. Each year, another 100,000 or so people retire from the federal workforce. That's when the old-fashioned paper chase begins.

Each retiree's paperwork is sent to a former mine in Pennsylvania, where it is put into storage. The mine contains 28,000 file cabinets and is staffed by 600 people. It takes roughly two months for the mine's employees to track down all the necessary paperwork, stick it in a folder, and file it away.

Decades into the digital age, the paperwork is still actually on paper. "We do print them out, right now. But we won't in the future," Doug Berger told the Washington Post. He's in charge of creating the paper records. But don't bet on the system changing. It takes exactly as long to process a claim today as it did in 1977.

And that's only because there are now more people toiling in the mine. "The Obama administration has now made the mine run faster, but mainly by paying for more fingers and feet," the paper writes. This adds to the long-term problem; all of those additional hires will eventually retire into the federal system, adding to the expense and the paperwork. USA Today has estimated that the federal retirement program is already almost as costly as Social Security.

There's an obvious solution: Computerize the records and the system. Some states have already done this -- Texas's system, for example, takes two days instead of two months. But the federal government can't seem to make it happen. The Post reports the feds have spent more than $100 million on modernization projects through the years, and haven't made any progress.

A better approach would be to contract the job out. Here's how it could work: Have the Office of Personnel Management put up a pot of money, perhaps $50 million. (That's a small part of the $80 billion the federal government spends on IT projects.) Make the bulk payable only when a contractor delivers a system that works, and make the contractor eligible to split the savings 50-50 with the government if the project comes in under budget. This would create an incentive for contractors to save taxpayers money, and ensure that taxpayers weren't on the hook for any overruns. That's a win-win.

There other benefits to this approach as well. For example, in the event of a HealthCare.gov-style disaster, the contractor would simply not be paid until it had fixed its mistakes. And the project would not involve hiring more federal workers, who eventually become federal retirees.

"Privatization" has become a dirty word in Washington, so that might make this plan harder to sell. Maybe all we need is a better term. Let's call it "job sharing," and get the work out of the hands of bureaucrats. We can save money and unbury the federal retirement process.

Rich Tucker is a senior writer in the B. Kenneth Simon Center for Principles and Politics at the Heritage Foundation.

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