Sign-up Starts for Massive New Federal Worker Pension Plan

WASHINGTON — The federal government this week enters the first sign-up period of a tax-deferred savings plan for its 3 million civilian workers.

Francis X. Cavanaugh, executive director of the Federal Retirement Thrift Investment Board, has had four months and a staff of 20, plus 1,108 Agriculture Department record-keepers, to get the plan rolling.

“There isn’t anyone who isn’t apprehensive about the start-up date,” one congressional source said.

Big Block of Capital

On April 1, Treasury Secretary James A. Baker III will deposit $140 million into 600,000 tax-deferred individual savings accounts for federal workers hired since Jan. 1, 1984. That will officially implement the new government thrift plan, which may produce one of the biggest blocks of investment capital in history.

Although it creates a new source of investment capital and a new benefit for federal workers, the plan holds the potential to become an administrative nightmare.

The new Federal Employees Retirement System measure passed last June automatically covers all federal employees hired since Jan. 1, 1984. Employees hired before then must decide this year whether to switch from the old Civil Service Retirement System into the new system, which took effect Jan. 1 and includes a different basic pension plan.

But the key to the system is the so-called thrift plan--a tax-deferred retirement savings plan in which the government will essentially match as much as 5% of a worker’s salary, and a worker can contribute as much as 10% of earnings.

After a few years, 5% to 15% of an $80-billion annual federal payroll will amount to real money by providing, as the late Sen. Everett M. Dirksen once said, “a billion here, a billion there.”

After a phase-in period, a worker may choose to have his or her money invested in the private sector. The magnitude of the money involved has caused concern that the government thrift plan might become an 800-pound gorilla in the stock market.

For employees hired in and after 1984, the government will automatically contribute the equivalent of 1% of salary to the plan, whether the worker contributes or not. The $140-million deposit due April 1 is the 1% payment earned, beginning in 1984, by recently hired employees.

Matching Contributions

For those workers, and for more senior employees who choose the new retirement system, the government also matches dollar-for-dollar the first 3% of pay voluntarily saved by the worker and contributes 50 cents on the dollar for the next 2%.

No one knows how much workers will decide to contribute. On average, 70% of those eligible for tax-deferred savings plans--known in the private sector as 401(k) plans--participate.