FY 2003 FEC Budget Request

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This document is part of the Congressional Justification Budget Request for FY 2003 presented to the Congress Pursuant to GPRA and OMB A-11 by the Federal Election Commission on February 25, 2002.


APPENDIX A

Full Funding of Federal Retiree Costs in the FY 2003 Budget

The following description and justification are taken verbatim from the OMB suggested justification for the Administration’s "Freedom to Manage" initiative that would allocate the full costs of retirement for CSRS employees to the agency they work for as opposed to a fund in OPM’s budget. The proposal would also allocate the future health benefits costs for all retirees, whether FERS or CSRS employees, to the employees’ agency rather than to OPM. Agencies were directed to calculate the impact of such a change on the FY 2001 and 2002 appropriations as well as for the FY 2003 budget request.

The FEC has calculated the impact of the proposal would have been to increase the FEC budget by $1,491,500 in FY 2001, by $1,577,000 in FY 2002, and would require an additional $1,673,000 in FY 2003. Therefore, the impact would be to increase the FEC Current Services Budget for FY 2003 from $45,244,000 to $46,917,000.

DESCRIPTION

From the section-by-section summary of the Managerial Flexibility Act of 2001:

TITLE II - BUDGETING AND MANAGING FOR RESULTS: FULL FUNDING FOR FEDERAL RETIREE COSTS

The purpose of this title of the Managerial Flexibility Act is to make budgeting and management in the Executive Branch more performance-orientated and to improve accountability. This title would fill in the gaps so that all retirement costs are funded as they are earned, and the large unfunded liabilities are amortized. Subtitle A would charge agencies the full Government share of the accruing cost of CSRS benefits, and make conforming changes to the Foreign Service Retirement and Disability System and the Central Intelligence Agency Retirement and Disability System. It would also establish accrual retirement systems for uniformed services in the Coast Guard, Public Health Service, and National Oceanic and Atmospheric Administration (NOAA). Subtitle B would charge agencies the full accruing cost of the Government's share of post-retirement health benefits for Federal civilian employees in the Federal Employees Health Benefits (FEHB) Program. It would also adjust the recently enacted accrual of military health benefits for Medicare-eligible retirees to include military health care for all retirees from the uniformed services, and to charge the non-defense uniformed services for their accruing costs.


The following is a more detailed description of current funding of post-retirement costs for current employees and funding under the proposed legislation.


Civil Service retirement system (CSRS)

Current: Agencies pay about half of the employer's share for accruing benefits. The payment is either discretionary or mandatory, depending on the account. The remainder is covered by a mandatory general fund payment to amortize the unfunded liability. The benefit payments are mandatory.

Proposed: Agencies will pay their full share of accruing benefits. There will still be a mandatory general fund payment to amortize the unfunded liability accruing prior to this change. The benefit payments continue to be mandatory.


FERS

Current: Agencies pay their full share of accruing benefits. The payment is either discretionary or mandatory, depending on the account. The benefit payments are mandatory.

Proposed: No Change


Federal Employees Health Benefits (FEHB)

Current: On a pay-as-you-go basis. The benefit payments are mandatory, and are made from a central OPM account.

Proposed: Agencies pay the full cost of accruing benefits. The accrual payments are discretionary or mandatory, depending on the account. The general fund will make mandatory payments to amortize the unfunded liability accruing prior to this change. The benefit payments continue to be mandatory.


JUSTIFICATION

Reserve for Fully Accruing Federal Employees Retirement

The President’s 2003 Budget corrects a long-standing understatement of the true cost of literally thousands of government programs. For some time, the accruing charge of the Federal Employee retirement system (FERS) and military retirement system (MRS) costs and a portion of the old Civil Service retirement system (CSRS) costs has been allocated to the affected salary and expense accounts, and the remainder (a portion of CSRS, other small retirement systems, and all civilian and military retiree health benefits) has been charged to central accounts. The full cost of accruing benefits should be allocated to the affected salary and expense accounts, so that budget choices for program managers and budget decision makers are not distorted by inaccurate cost information.

The Budget presents the amounts associated with shifting this cost from central accounts to affected program accounts, starting in 2003. The amounts associated with the proposal are shown on a comparable basis for program accounts in 2001 and 2002. Agencies will also, for the first time, be charged for the accruing cost of retiree health care benefits for all civilian employees. These are also shown on a comparable basis for 2001 and 2002. For military retirees health benefits, current law requires agencies to be charged for the accruing cost for over-age 64 military retirees, and the budget proposes to extend this to under-age 65 military retirees in 2004. These amounts are shown in the Budget, beginning in 2004.

The proposal does not increase or lower total budget outlays or alter the surplus/deficit since the higher payments will be offset by receipts in the pension and health funds. The shift will reduce reported costs from central mandatory accounts and increase reported costs in the affected discretionary accounts. Consequently, these costs will be properly reported in the budget for the first time and considered as an annual cost of managing these programs, as they should be.

The Administration will oppose any attempt to divert the additional funding from the intended purpose and instead use it to fund programmatic increases. Therefore, the Administration proposes that the additional funding be fenced or held in a reserve and only be made available to the committees of jurisdiction for the specific purpose of adjusting for the understatement of costs.

This change in treatment of costs is the first in a series of steps that will be taken to ensure that the full annual cost of resources used – including support services, capital assets and hazardous waste -- is charged properly in the budget presentation.