DEFENSE DEPARTMENT

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5/1/2011
Government Insourcing Article Draws Rebukes

The article by Daniel Gouré, “Federal Agency Insourcing: Why Government Costs So Much,” (March 2011, p.20) of the right-wing Lexington Institute contains inaccuracies, half-truths and fabrications.

Gouré raises the argument that federal employees have higher salaries than their industry counterparts. Nearly every independent analysis has found that statement inaccurate. While lower graded, and blue-collar jobs are sometimes shown to be paid higher in government, depending on the locale, middle-graded positions are usually about equal in pay, and higher graded and professional positions are significantly lower paid in the federal sector. Furthermore the averages Gouré cites are likely not weighted to reflect the significantly higher proportion of jobs requiring higher education, higher skill, and higher responsibility levels in the federal service than the private sector.  

More offensive and largely wrong were the examples used by Gouré to support the statement that “federal workers also have access to an array of benefits rarely matched in the private sector.”  

Since 1987, newly hired federal employees are under the Federal Employee Retirement System which is a defined contribution plan (i.e. a 401k plan), not a defined benefit plan as his article stated.  

Prior to that time, employees were under the Civil Service Retirement System (CSRS) which is a defined benefit plan but which required employees to contribute 7 percent of their pay, after taxes. Under that system the retiree is not entitled to Social Security for his government work, will have any Social Security survivor benefit to which they are entitled either reduced or eliminated, and is only eligible for a severely reduced social security benefit earned as a result of any pre- or post-federal employment in the private sector. Some older current employees elected not to convert to FERS when given the opportunity.  Others have converted and all employees since 1987 are under FERS.

The only agency match under the Thrift Savings Plan (TSP) is that for FERS employees that reflects the government defined contribution to this 401k type retirement plan. It is not a separate benefit as implied in the article. Contributions by the employee over 5 percent of their salary are not matched. Contributions by CSRS employees to the TSP are not matched at any amount.

Employees pay 40 percent of the cost, again, after taxes, into the Federal Health Benefit Program. My cost for example for the popular Blue Cross PPO is around $430 per month for my wife and myself.  

Long-term care insurance, if elected, is paid 100 percent by the employee, as is any dental or optical plan. Life insurance also includes employee contributions.

Thomas C. Meyer
Shelby Township, MI


In the article “Federal Agency Insourcing: Why Government Costs So Much,” Daniel Gouré claims that federal government workers “enjoy a range of benefits far in excess [of] their private sector counterparts.” And he lists a number of benefits which are either inaccurate or misleading. The retirement benefit for current employees are composed of three parts: Social Security, which is no different than anyone else paying into the system; Thrift Savings Plan, which is the equivalent of the 401(k) plans; and the Federal Employee Retirement Systems (FERS itself), which is half of the old Civil Service Retirement System (CSRS). On the Thrift Savings Plan, one should note that this is the equivalent of a 401(k) plan and many private companies match more than the federal government’s 5 percent maximum.

The FERS defined pension benefit program definitely does not allow for full-retirement and pension at age of 56 with 30 years of service. FERS pays 1 percent per year of the average top three years of service and 1.1 percent if one stays through age 62, I believe. So, after 30 years and at age 62 (not 56), a FERS retiree would collect a maximum of 33.3 percent of his top three years.

Leonard F. Levine
Ft. Meade, MD


In the article “Federal Agency Insourcing: Why Government Costs So Much,” Daniel Gouré attacks the general worth of U.S. government employees. In his slanted diatribe, Gouré fails to mention that the costs for benefits like health care plans, life insurance, and long-term care insurance are paid for by the employee and that those costs are equivalent to what private employees must pay. In addition he also fails to explain that the TSP is the federal government’s version of a 401(k) that employees must contribute to. Also Gouré does not address the cost the government must pay for that $50,000 a year private sector employee. When you add in contract costs, management fees, and overhead (office space and telephone equipment) that employee’s services costs the government $100,000 to $150,000 per year which is a primary reason for Defense Secretary Robert Gates’ shift toward reliance on federal employees.

Gary W. Allen
Orlando, FL


In his article, “Federal Agency Insourcing:  Why Government Costs So Much,” Daniel Gouré commits the mistake of not comparing apples to apples. His metric of choice for comparing the costs of a federal worker versus a private contractor is average annual compensation (wages plus benefits). This is the amount of compensation that accrues to the employee. He completely ignores the fact that, when the federal government contracts with a private company for services, the true cost of that employee to the government is not only the take-home pay and benefits, but all the overhead and profit allocated by the company to that employee.

The true annual cost to the federal government of a typical military contractor (a full-time equivalent unit, or FTE) is anywhere between $150,000 to $250,000. Contrast this with Gouré’s figure of $123,049 in average annual compensation for a federal worker and you can see how the Pentagon estimated that it would save an average of $44,000 per year for every FTE by insourcing.

There may be other compelling reasons for sparing the Defense Department and the economy the disruption of reverting from an outsourced to an insourced work force, but cost per FTE is not one of them.

Michael F. Cochrane
Hampton, VA

Topics: Defense Contracting, Defense Department, Civilian Workforce

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