Agencies stuck with tab for federal contractor pensions, taxpayer group says

The federal government is on the hook for billions of dollars in federal contractor private pension costs that possibly could have been avoided, according to a taxpayer watchdog group.

Citizens Against Government Waste (CAGW) said on Feb. 10 it has begun investigating situations in which the federal government has assumed ongoing responsibility for the cost of contractor pension plans. These situations have occurred primarily because of terms approved under cost-plus federal contracts, in which the government contributes to ongoing costs of contractor retirement benefits, the group said in a news release.

For example, the Government Accountability Office reported in June 2011 that the Energy Department was obligated to pay pension costs to contractors totaling $37 billion over the coming years.

CAGW said the problem is likely much larger, since the federal government has roughly 200,000 contractors taking in about $700 billion a year.

“Many of these companies sponsor defined benefit pension plans for their employees (in which) company officials control not only the level of benefits offered, but also the strategies used for investing plan assets,” CAGW said in a Feb . 10 news release. “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 taxpayer group said the structure of those contracts has encouraged several major federal contractors to maintain more expensive defined-benefits plans, even as most of government and private industry have moved away from those types of plans.

Although contractors have control over the type of plan offered and the investment decisions, the government agency ultimately bears the risk if the investment choices are poor, CAGW said. “This is a great deal for the companies but a raw deal for taxpayers,” the group said in a previous news release on the topic.

The taxpayer group said it has sent Freedom of Information Act requests to 14 federal agencies to obtain a fuller accounting of the taxpayer liabilities for contractor pensions.

In addition, the chairman of the Senate Armed Services Committee, Sen. Carl Levin, D-Mich., as well as Ranking Member John McCain , R-Ariz., have asked the GAO to analyze those liabilities at the Defense Department.

About the Author

Alice Lipowicz is a staff writer covering government 2.0, homeland security and other IT policies for Federal Computer Week.

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Reader comments

Tue, Feb 21, 2012

If their so worried about misuse of power they should start with Congress and the rest of the hill. We can start with Capital staff's special pay which is unlike the rest of Federal employees. Then we have Congress who regularly abuses it's access to information by buying stock based on their special access to information. Let's not forget Congress is the same one's hacking at military Tricare benefits while they increase their own pay and benefits. Tell me we don't owe veterans without limbs a debt of gratitude and then some! Meanwhile we are killing defense budgets without protecting the veteran who suffers as a side effect... Gimme a break. My point is all this "Hack & Slash" ends up making unintended victims of people. Reactionary leadership always fails because their not considering the full picture.

Mon, Feb 13, 2012

I think those of us who work for true contractors have only 401Ks.(mine has a 3% match) But FFRDCs like MITRE, Draper Labs, University Research Centers, Oak Ridge, etc all have very plush 401ks with Pension benefits. They also charge the govt almost double for the same service. Contracting companies need to keep rates competitive so our benefits are very low. But the govt is relatively price insensitive to this other "Advisory, FFRDC type companies" who they wrongly assume has unique intellectual talent.

Mon, Feb 13, 2012 fritz

I was a federal contractor in 1996 and I contributed extra as my employer matched my amount up to 15% to my retirement. I had x number of dollars in the plan when the contract was lost and I refused their generous offer to work in another city. My 401k fund account managers then lost 60% of the value of my 401k and wanted to close my 401k and send me a check for the remainder. I threated to show my pension records to the IRS so they didn't issue me a check. 10 years later I closed the 401k when the amount reached to what I had in it 10 years earlier. Because I was older then 59 1/2 and I didn't take a large tax hit. the investment fund managers also deducted the matching amount paid by the government to my 401K . I disagree that they had to right to this and I plan on asking the IRS to look into this matter.

Mon, Feb 13, 2012 Linda V Arlington, VA

Most contractors don't receive a pension. Certainly DoD contractors do not receive pensions. We are permitted to participate in a 401k plan. We are vested after three years. Your committee is grossly over estimating the cost to taxpayers. You have an extremely distorted viewpoint. Your committee must be rich and clearly do not understand the contractor community.

Mon, Feb 13, 2012 Robert MD

Ditto - where is the mystery pensions your talking about in the article? Most large contractors lost these about six years ago. I was fortunate to have one at Northrop Grumman but left because I my higher pay offset any benefit from the silly pension. All of this is just a play on your wages anyways. X dollars in from a contract makes up your pension. Easier to manage your own retirement. Trick is to save early and let the money work for you in a 401k.

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