Special Message to the Congress Proposing Increased Pay, Retirement, and Health Benefits for Federal Employees

To the Congress of the United States:

Among the many blessings which Americans can count is a corps of Federal civil servants that is unequaled anywhere in the world. Honest, intelligent, efficient, and-above all--dedicated, these men and women represent a national resource and a national asset.

America expects much of these public servants. We have made vigorous demands on their time and energy. We have exacted from them high standards of work and conduct.

In recent years, we have moved steadily to compensate these men and women equitably and competitively for their quality performance in the public interest. To that end, the Administration prepared and the Congress enacted, the Federal Salary Reform Act of 1962. We established the principle that Government workers are entitled to a pay scale which compares favorably with pay in private industry.

Such a pay scale is as much in the national interest as it is in the interest of Government employees. I said when signing the Government Employees Salary Reform Act of 1964:

"America's challenges cannot be met in this modern world by mediocrity, at any level, public or private. All through our society we must search for brilliance, welcome genius, strive for excellence."

We have been true to the principle of comparability. Since 1961, the pay of Federal employees has increased by over 16 percent.

In the brief period since I have been President, employees of the Federal Government have enjoyed pay increases amounting to nearly 12 percent. These increases have done much to close the gap between compensation for Government employees and those in private enterprise.

The increases in basic pay, however, were not accompanied by any significant benefits in forms other than salary. Yet pay, retirement, and other fringe benefits are all parts of an employee's total compensation. Recognition of this basic fact is crucial in developing a rational and equitable system of compensation. Neither pay, nor retirement, nor other fringe benefits can be considered in isolation. For all of them together represent the worker's real reward.

The proposals which I am making today reflect this consideration.

I propose increases in Federal compensation of $485 million per year.

I am asking the Congress to enact legislation which will provide an average increase for Federal civilian employees amounting to 3.2 percent of total compensation.

On the average, direct salary increases will amount to 2.85 percent. The other increases are for fringe benefits to assist the Government employee in providing for his own economic security.

In considering these proposals, I urge careful study of the supporting data and background information contained in the two reports transmitted with this message:

1. The report of the Cabinet Committee on Federal Staff Retirement Systems, prepared in response to my request of February 1, 1965, for a review of Federal retirement policies and benefits.

2. The annual report to the President of the Director of the Bureau of the Budget and the Chairman of the Civil Service Commission on the comparison between Federal civilian pay levels and those in private enterprise--as required by law.

I also urge the Congress to take into account two other considerations of utmost importance to the Federal employee--and all wage earners--and the Nation as a whole:

--The wage-price guideposts which are key weapons in our defense against inflation, and

--Sound and responsible Federal fiscal policy.

Both of these considerations weighed heavily in my mind as I studied various possible recommendations to make to the Congress this year. For nothing will destroy the progress of the Federal employee in his efforts to achieve comparability more effectively than the erosion of inflation.

PAY

I recommend to the Congress the enactment of a pay raise for Federal employees-effective January 1, 1967--ranging from 1 percent to 4 1/2 percent.

With these increases, nearly one million of the 1.8 million employees affected will achieve pay comparability with private enterprise. These employees include about 88 percent of all postal workers and the more than 470,000 Classification Act employees in grades GS-1 through GS-5.

The smallest increase of approximately 1 percent will go to the lowest of the two grades of the Classification system which are already above comparability. The modestly higher increases will go to the relatively few upper grades where the current comparability difference is larger and where, accordingly, our recruiting difficulties are greatest.

RETIREMENT

I shall not detail in this message all of the changes recommended by the Cabinet Committee on Federal Staff Retirement Systems. The report speaks for itself clearly and succinctly. I endorse it.

I call particular attention to three proposals which I believe to be most urgent. These are:

1. Those who reach age 55 with 30 years of service, should be allowed to retire without reduction in annuity. The Government should also have the option to retire involuntarily, at age 55, employees in grades GS-13 and above who have 30 or more years of service.

2. We should guarantee that retirement, disability, and survivor benefits are at least equal to benefits payable under the Old-Age and Survivors Disability Insurance program of the Social Security system.

3. We should provide for the transfer to the Social Security system of service credits of employees who die, become disabled, or leave Federal employment before becoming eligible for Federal retirement systems benefits.

I recommend that these three proposals, like the basic pay increases, be made effective January 1, 1967.

I also recommend:

--The enactment into law of a clear statement of retirement policy, as set forth in detail on pages 10 and 11 of the Cabinet Committee's report.

--Adjustments between the Civil Service and the Foreign Service retirement systems.

The ultimate costs of all of the proposed changes in the retirement systems are set forth in tabular form on pages 21 and 22 of the Committee's report. This report also contains a sound financing plan. It is essential that we place our retirement system on a sound basis of financing as soon as possible.

I recommend that financing provisions be enacted as a part of the retirement legislation, including a .5 percent increase in contributions of both agencies and employees, effective January 1, 1967.

The report of the Cabinet Committee does not deal with changes in the military retirement system. Although the committee reviewed important aspects of military retirement, it agreed with the Secretary of Defense that recommendations for fundamental changes should wait completion of a broad management study now underway in the Department of Defense.

The retirement report and the recommendations for legislation presented by it are major steps forward in our continuing efforts to improve the compensation system for Federal employees. In my judgment, they are equal in importance to the 1962 Federal Salary Reform Act.

OTHER BENEFITS

I recommend a phased two-year increase in the Government's contribution to our civilian health benefits program.

The first increase should be effective on January 1, 1967; the second on January 1, 1968. These increases would restore the ratio of costs to the Government and costs to the employee established by the original Health Benefits Act of 1959.

The effective date of other important adjustments in our retirement system should be deferred for at least another year. The most important of these are to:

1. Extend Medicare to Federal civilian employees.

2. Continue benefits until age 22 for those surviving children of deceased Federal employees who are continuing their education.

3. Compute benefits on the basis of a guaranteed disability minimum to widows of employees who die after retirement for disability.

4. Continue benefits for a surviving widow if she remarries after age 60.

NEED FOR NEW KNOWLEDGE

If we are to continue to modernize our policy of total compensation, we need better information than is now available. We must examine all of the fringe benefits in our compensation system. These include leave, holiday pay, special pay differentials, unemployment insurance, Federal Employees Compensation Act benefits for duty related accidents and illness, health benefits, life insurance, and counterpart benefits prevailing elsewhere in our economy.

I am recommending that the Congress appropriate funds for collection and evaluation of information on non-Federal fringe benefits in the budget of the Department of Labor for 1967.

CONCLUSION

The measures I am proposing meet the test of fairness to our employees. They also meet the test of economic responsibility.

For the past many months, the Government has appealed to labor and industry alike to hold price and wage increases within the guideposts established by the Council of Economic Advisers.

If our Government is to exercise continued leadership in the fight for price stability, then we must continue to practice what we preach. The Government has the added responsibility of not contributing to inflation by its own actions.

With five years of unprecedented economic expansion, our industry is now operating near the peak of its capacity. Added to this, we now have the obligation to support our fighting men in Vietnam and our commitment to freedom there.

This Administration has already proved that our nation does not have to live with depression or recession. Now we must prove that we can remain both strong and prosperous without endangering our economic stability.

Government employees have a direct stake in this effort. For none is more harmed by inflation--and harmed more quickly--than the wage earner and the salaried employee. It is of small value to him if the extra dollar he earns buys less and less with every passing week.

We are the wealthiest nation in history. We can afford whatever is necessary for both our welfare at home and our common defense abroad. But we can do this only by the exercise of fiscal prudence and economic responsibility during times when special demands are being made on our economy by the military needs of Vietnam.

I am certain that both Government employees and the leaders of their organizations will recognize that restraint serves both their cause and the national interest. They will recognize that these proposals meet three essential requirements:

--First, that taken together, pay, retirement, and health benefits amount to an increase of the maximum total compensation increase within the wage-price guidelines.

--Second, that the major increases will go to those Federal workers whose compensation is least comparable with private enterprise.

--And third, that these proposals move the entire pay scale toward full comparability in an orderly manner.

The annual cost of these proposals will amount to $485 million. If they are made effective on January 1, 1967--which I urgently recommend--the cost for the next fiscal year will be $240 million. These costs are fully provided for in the budget which I submitted to the Congress in January.

The Federal government is the largest employer in the nation. The largest employer has an undeniable responsibility to lead, and not merely to follow, in instituting and adhering to model employment practices.

A model employer can demand excellence in performance. A model employer can demand continuing awareness of the need for greater productivity, more imaginative conduct of Government programs, and substantial cost reduction. We have made those demands.

Federal officers and employees at all levels have responded with enthusiasm and skill. If they had not been determined to improve the efficiency and economy of Government operations, budget costs in both 1966 and 1967 would be some $3 billion higher than they are.

By the close of this fiscal year, the total compensation for our two and one-half million Federal civilian employees will be $20.4 billion a year. With expenditures of such magnitude, the President, the Congress, and Federal employees themselves, cannot fail to give the most careful consideration to every adjustment in pay, retirement, and health benefits. Each proposed adjustment must not only be merited, it should also be consistent with the principles of sound government.

LYNDON B. JOHNSON

The White House

March 7, 1966