02-11571. Federal Employees Retirement System; Normal Cost Percentages

AGENCY:

Office of Personnel Management.

ACTION:

Notice.

SUMMARY:

The Office of Personnel Management (OPM) is providing notice of revised normal cost percentages 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, 2002.

Agency appeals of the normal cost percentages must be filed no later than November 12, 2002.

ADDRESSES:

Send or deliver agency appeals of the normal cost percentages to the Board of Actuaries, care of Frank D. Titus, 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:

Patrick Jennings, (202)-606-0299.

SUPPLEMENTARY INFORMATION:

The FERS Act of 1986, Pub. L. 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 assume a rate of investment return of 6.75%, a reduction of .25% from the current rate of 7%. The Board reduced the anticipated rate of inflation from 4% to 3.75% and retained the projected rate of General Schedule salary increases at 4.25%. These salary increases are in addition to assumed in-grade increases that reflect past experience.

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 .5% a year, as compared to 3% and .25%, 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 November 2000, 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 § 841.403 of Title 5, Code of Federal Regulations. The Government-wide normal cost percentages, including the employee contributions, are as follows:

	Percent
Members	17.1
Congressional employees	17.2
Law enforcement officers, firefighters, and employees under section 302 of the Central Intelligence Agency Act of 1964 for Certain Employees	24.0
Air traffic controllers	23.2
Military reserve technicians	14.0
Employees under section 303 of the Central Intelligence Agency Act of 1964 for Certain Employees (when serving abroad)	16.5
All other employees	11.5

Under § 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, 2002.

The time limit and address for filing agency appeals under §§ 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.

Kay Coles James,

Director.