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Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity to discuss the financing of the Civil Service Retirement and Disability Fund (CSRDF). In my statement today, I will make five points:

• The CSRDF is a set of accounts, common in the federal budget, for recognizing the cost of deferred compensation as it is earned and the liabilities that have accumulated for future payments. That accounting may give the illusion that the government is setting aside funds to pay future benefits. Unlike private pension funds, however, the trust fund has no independent capacity to make future payments.
  
  
• Financing for civil service retirement benefits is on a pay-as-you-go basis. Benefits paid each year are financed by federal revenues received that year, including payroll tax contributions paid by federal employees.
  
  
• The retirement fund does not face a financial crisis. Over time, the ratio of beneficiaries to the revenue base does not surge. In fact, the demand on the general fund declines in constant dollar terms after 2015.
  
  
• The Administration's proposal to increase agency contributions for Civil Service Retirement System (CSRS) employees could make agencies more aware of the cost of doing business but is not intended to cause additional changes in the budget.
  
  
• Turning the CSRDF into a pension fund comparable to those sponsored by state and local governments or private firms would entail a fundamental policy change. Financial resources would have to be accumulated outside of government as retirement benefits were earned. A substantial increase in federal debt held by the public would be required in the near term to finance the new pension fund.

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