Cover: How Do Federal Civilian Pay Freezes and Retirement Plan Changes Affect Employee Retention in the Department of Defense?

How Do Federal Civilian Pay Freezes and Retirement Plan Changes Affect Employee Retention in the Department of Defense?

Published Nov 4, 2014

by Beth J. Asch, Michael G. Mattock, James Hosek


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Research Question

  1. How do federal civilian pay freezes and retirement plan changes affect employee retention in the Department of Defense?

Little is known about the effect of compensation changes on the federal civilian workforce in the Department of Defense (DoD) — even as civilian employees experienced three straight years of pay freezes between 2011 and 2013 and a mandated increase in the retirement contribution rate for employees hired after 2012. For civil service managers, a key concern is whether the reduction in pay and benefits is making it more difficult for the federal government to recruit and sustain an adequate workforce, especially in critical skill areas. Understanding civil service retention is particularly important for DoD, given the significant contribution made by the federal civil service workforce to military readiness.

RAND has begun to extend the dynamic retention model to federal civil service employment. This study demonstrates the use of this capability to assess the effect of pay freezes, unpaid furloughs, and changes to civil service retirement on retention in a portion of the federal civil service workforce — specifically General Service workers with at least a bachelor's degree. Our analysis showed that permanent pay freezes decrease the workforce retained by 7.3 percent. There is no discernable change in retention from a six-day unpaid furlough.

The effect on retention of increasing employee contributions to the federal retirement defined-benefit plan, as recently mandated in law, depends on employees' savings behavior — for example, whether employees were already saving enough to cover the higher contribution or whether they might shift contributions from one part of the retirement plan to another, losing matched contributions by the employer by doing so. RAND analyzed a number of cases and found that higher employee contributions could result in as much as an 8.6 percent drop in the number of employees retained over the long run.

In the future, this capability could be used to assess a wide range of compensation policies — in other occupational areas; for demonstration pay systems such as for the STEM workforce; specific demographic groups, such as women and minorities; and specific locations of interest.

Key Findings

The Dynamic Retention Model (DRM) can be used to evaluate the effects of compensation changes on federal civilian employee retention.

A concern for civil service managers is whether pay and benefit reductions are making it more difficult to sustain the federal workforce.

Planners and policymakers in the federal government have little capability to assess how changes in pay will affect federal civil service retention.

RAND has begun extending its Dynamic Retention Model to permit analysis of federal civilian worker decisions to stay or leave federal service in response to changes in compensation.

Compensation changes could have a noticeable effect on retention in the federal civilian workforce.

  • Simulations of a three-year pay freeze suggest that the number of GS employees with at least a bachelor's degree who stay with the civil service is 7.3 percent lower in the long run than it would have been with no pay freeze.
  • A mandated increase in retirement contributions could result in as much as an 8.6 percent decline in retention of the GS workforce with four or more years of college or could have virtually no effect, depending on individual savings behavior and contribution matches by the employer.

How important these effects are in terms of defense readiness and cost is unclear and an important area for further investigation.

This research was conducted within the Forces and Resources Policy Center of the RAND National Defense Research Institute, a federally funded research and development center sponsored by the Office of the Secretary of Defense, the Joint Staff, the Unified Combatant Commands, the Navy, the Marine Corps, the defense agencies, and the defense Intelligence Community.

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