Federal Employees Retirement System; Normal Cost Percentages

OFFICE OF PERSONNEL MANAGEMENT

Federal Employees Retirement System; Normal Cost Percentages

AGENCY: Office of Personnel Management.

ACTION: Notice.

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SUMMARY: The Office of Personnel Management (OPM) is providing notice

of revised normal cost percentage for employees covered by the Federal

Employees Retirement System (FERS) Act of 1986.

DATES: The revised normal cost percentages are effective at the

beginning of the first pay period commencing on or after October 1,

1997.

Agency appeals of the normal cost percentages must be filed no

later than October 20, 1997.

ADDRESSES: Send or deliver agency appeals of the normal cost

percentages to the Board of Actuaries, care of William E. Flynn, III,

Associate Director for Retirement and Insurance, Office of Personnel

Management, Room 4A10, 1900 E Street, NW., Washington, DC 20415.

Send requests for actuarial assumptions and data to the Office of

the Actuary, Room 4307 STOP, Office of Personnel Management,

Washington, DC 20415.

FOR FURTHER INFORMATION CONTACT: Harold L. Siegelman, (202)-606-0299.

SUPPLEMENTARY INFORMATION: The FERS Act of 1986, Public Law 99-335,

created a new retirement system intended to cover most Federal

employees hired after 1983. Most Federal employees hired before 1984

are under the older Civil Service Retirement System (CSRS). Section

8423 of title 5, United States Code, as added by the FERS Act of 1986,

provides for the payment of the Government's share of the cost of the

retirement system under FERS. Employees' contributions are established

by law and constitute only a small fraction of the cost of funding the

retirement system; employing agencies are required to pay the remaining

costs. The amount of funding required, known as ``normal cost,'' is the

entry age normal cost of the provisions of FERS that relate to the

Civil Service Retirement and Disability Fund (Fund). The normal cost

must be computed by OPM in accordance with generally accepted actuarial

practice and standards (using dynamic assumptions). Subpart D of Part

841 of Title 5, Code of Federal Regulations, regulates how normal costs

are determined.

The Board of Actuaries of the Civil Service Retirement System

approved a revised set of economic assumptions for use in the dynamic

actuarial valuations of CSRS and FERS. These assumptions were adopted

after the Board reviewed statistical data prepared by the OPM actuaries

and considered trends that may affect future experience under the

Systems.

Based on its analysis, the Board concluded that it would be

appropriate to continue to assume a 7% rate of investment return, while

reducing the anticipated rate of inflation from 4.5% to 4% and lowering

the projected rate of General Schedule salary increases from 4.5% to

4.25%. These salary increases are in addition to assumed in-grade

increases that reflect past experience.

In setting the new inflation assumption, the Board took into

account technical changes in the calculation of the Consumer Price

Index that were announced on April 1, 1996. It has been estimated that

these changes will lower the annual rate of increase in the Index by

about .25 of a percentage point.

The new assumptions anticipate that over the long term the annual

rate of investment return will exceed inflation by 3% and General

Schedule salary increases will exceed inflation by .25% a year, as

compared to 2.5% and 0%,

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respectively, under the previous assumptions.

The Board also adopted new demographic or ``non-economic''

assumptions. The new demographic rates are based on methodology adopted

by the Board in December 1995, in conjunction with its comprehensive

review of an extensive 10-year experience study prepared by the OPM

actuaries.

The normal cost calculations depend on both the economic and

demographic assumptions. The demographic assumptions are determined

separately for each of a number of special groups, in cases where

separate experience data is available. Based on the new economic

assumptions and demographic factors, OPM has determined the normal cost

percentage for each category of employees under Sec. 841.403 of Title

5, Code of Federal Regulations. The Government-wide normal cost

percentages, including the employee contributions, are as follows:

Members...........................................................16.5%

Congressional employees...........................................16.7%

Law enforcement officers, firefighters, and employees under

section 302 of the Central Intelligence Agency Act of 1964 for

Certain Employees 24.6%

Air traffic controllers...........................................23.1%

Military reserve technicians......................................11.9%

Employees under section 303 of the Central Intelligence Agency

Act of 1964 for Certain Employees (when serving abroad)...........16.3%

All other employees...............................................11.5%

Under Sec. 841.408 of Title 5, Code of Federal Regulations, these

normal cost percentages are effective at the beginning of the first pay

period commencing on or after October 1, 1997.

The time limit and address for filing agency appeals under

Secs. 841.409 through 841.412 of Title 5, Code of Federal Regulations,

are stated in the DATES and ADDRESSES sections of this notice.

Office of Personnel Management.

James B. King,

Director.

[FR Doc. 97-10081 Filed 4-17-97; 8:45 am]

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