For Immediate Release February 16, 2012

Contact:  Leslie K. Paige 202-467-5334 Luke Gelber 202-467-5318

GM Reforms Pension Plan – Feds Should Do the Same

(Washington, D.C.) – In response to General Motors’ announcement that it will end traditional defined-benefit pension plans for its white collar workers, Citizens Against Government Waste (CAGW) urged the federal government to immediately reform how it reimburses contractors for their post-retirement costs, including defined benefit plans. As CAGW pointed out in its February 9, 2012 report, these changes could save taxpayers billions of dollars without adversely impacting national security or essential federal programs.

An April 2011 Government Accountability Office (GAO) report reviewed the costs of contractor post-retirement benefits at the Department of Energy (DOE). Under federal accounting standards, the government is responsible for paying certain costs of these benefits, which include pensions and healthcare. The GAO report noted that “DOE’s costs for reimbursing contractor pension and other postretirement benefits have grown since 2000 and are projected to increase in coming years.” Over the past 10 years, DOE’s annual costs have ranged from $43 million in 2001 to $750 million in 2009. They have increased by an average of 8 percent annually and should increase by 9 percent annually over the next five years, according to GAO. In 2010, contractors received $3.3 billion in payments for post-retirement benefits, and DOE’s liability over the next 10 years could reach $36.7 billion.

While the DOE is the only agency to have produced data on its pension liabilities, the reimbursement requirement covers the entire federal government. The New York Times reported on June 15, 2011, that the President’s fiscal year 2012 budget requested $547.9 million for NASA to pay the pensions of thousands of workers at the United Space Alliance, a joint venture of Lockheed Martin and Boeing to operate the now-extinct space shuttle, ensuring that taxpayers’ money will be disappearing into the atmosphere long into the future. Senate Armed Services Committee Chairman Carl Levine (D-Mich.) and Ranking Member John McCain (R-Ariz.) wrote a letter to GAO on December 7, 2011, requesting a report on post-retirement benefit costs at the Department of Defense.

The increased expense for post-retirement costs has been caused by low interest rates, larger numbers of retirees, and poor stock market performance. In other words, if the market goes down, the taxpayers’ liability goes up.

“Taxpayers (and even Washington insiders) will be shocked to learn about this practice, which has not been widely publicized, and which certainly does not take place anywhere outside of the federal government,” said CAGW President Tom Schatz. “It is hard to imagine one business owner telling another business owner, ‘you can buy my products but you have to cover my employees’ retirement benefits for the rest of their lives.’”

“Unsustainable pension costs were among the principal drivers of General Motors’ alarming losses prior to its enormous taxpayer bailout, and the company is appropriately trying to right-size its liabilities,” added Schatz. “The federal government should curtail its expenses for contractor post-retirement costs by eliminating reimbursement for the costs of defined benefit plans for new employees, among other suggested reforms.”

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