CAGW Releases Report on Federal Contractor Benefits

(Washington, D.C.) – Today, Citizens Against Government Waste (CAGW) released a report outlining taxpayer liabilities for government contractors’ post-retirement benefits. The project was initiated after a Government Accountability Office (GAO) report on the topic was released in April, 2011. The GAO analyzed payments by the Department of Energy (DOE) to contractors for the cost of underfunded pensions. DOE paid $3.64 billion to its contractors over the past 10 years, and GAO estimated that future DOE liabilities for these benefits could be $36.7 billion over the next 10 years.

The federal government has roughly 200,000 contractors working for just about every agency, taking in approximately $700 billion annually. Many of these companies sponsor defined benefit pension plans for their employees; company officials control not only the level of benefits offered, but also the strategies used for investing plan assets. Since many cost-plus federal contracts include clauses that ensure these pension plans are fully funded even if the plans’ investment benchmarks are not met, taxpayers ultimately bear the investment risks associated with pension fund investment decisions made by some of the most profitable corporations in the United States.

“The data contained in our report on contractor post-retirement liabilities advances our understanding of the magnitude of this issue, but more information is necessary to provide a complete picture of liabilities across the government. CAGW has sent Freedom of Information Act requests to 14 agencies in order to obtain full accounting of taxpayer liabilities. In addition, Senate Armed Services Committee Chairman Carl Levin (D-Mich.) and Ranking Member John McCain (R-Ariz.) have requested that the GAO analyze post-retirement liabilities at the Department of Defense (DOD). That information is vital at a time when DOD is facing epic budget cuts,” said CAGW President Tom Schatz.

Since the 1980s, private companies, the federal government, and several state governments have eliminated the uncertainties and risks associated with managing defined benefit pension plans (low interest rates, stock market declines, and an aging work force) and have migrated to defined contribution retirement options. However, many companies that contract with the federal government have continued to offer defined benefit plans, in part because the investment risks are absorbed by the taxpayers through reimbursements for pension shortfalls. CAGW’s report recommends that any market losses in invested pension funds be recuperated from the contracting companies which make the investment decisions, instead of taxpayers; and that contractor agreements should be changed to prohibit reimbursement for new employees unless they are covered by defined contribution pension plans.

Citizens Against Government Waste is a nonpartisan, nonprofit organization dedicated to eliminating waste, fraud, mismanagement and abuse in government.