The decision to eliminate longevity pay raises, or within-grade raises, at the Defense Department will save it millions of dollars each year.

But it also will cost Army, Navy and Air Force civilians millions of dollars in lifetime salary that would have boosted the value of other perks, from life insurance to the value of their 401(k) plans and their lifetime retirement annuities.

Within-grade raises aren't technically automatic. An employee must get the equivalent of a "satisfactory" rating to qualify for one. But the fact that 99 percent of feds qualify when they have enough time in grade has convinced politicians -- from the Carter administration to present -- that they are a costly benefit.

Under the 10-step federal grade system, workers get a 3 percent within-grade raise every year in the first three steps, every two years thereafter, and every three years in the last three steps of their grade. That produces a bottom-to-top differential of roughly 30 percent in each pay grade.

The longevity step system was implemented decades ago. It was designed to take care of workers at a time when the government was largely an army of clerks and administrative employees, when promotions were rare and pay raises were hit or miss.

Officials of the Carter administration were horrified by the longevity system, which they said feds got just for showing up. They were dubbed "being there" raises, after the Peter Sellers movie about a nobody who rises to the top simply by being at the right place at the right time.

Now after decades under assault, the within-grade raises will disappear from the Defense Department. Other agencies are likely to ask Congress to let them shed the longevity raises in favor of a pay-for-performance system.

Under this system, workers would be guaranteed only the locality portion of any annual pay raise authorized by Congress or the White House.

Additional raises would depend on ratings from supervisors at year's end. Defense has used this and a pay banding system, combining three grades, in many of its labs. Some employees love it. But many workers fear that it signals a return to the spoils system and virtually deputizes managers to practice the buddy system.

Congress is so eager to adjourn that there is little hope for votes on proposals to extend premium conversion to retirees and to protect the Social Security benefits of feds when they retire.

Premium conversion would have let retirees do what workers can: pay health care premiums with pretax dollars, saving them $250 to $500 per year in taxes.

The bills to eliminate the Social Security windfall and offset formulas got plenty of co-sponsors, but no backing from the House or Senate leadership of either political party. Windfall reduces the Social Security benefit of feds under the old Civil Service Retirement System by up to $300 a month. The offset formula can wipe out the spousal/survivor Social Security benefit of CSRS retirees, schoolteachers and some other public employees.

All three bills will be back next year. Since it is an election year, odds are good that members of the Republican and Democratic leadership may let them come up for a vote.

Check out the new Flexible Spending Account option open to feds to see if it is right for you. Under the system, you can set aside anywhere from $250 to $3,000 next year for a medical savings account and up to $5,000 for a dependent account.

The money is pretax, meaning you don't pay taxes on it. It can be used to cover medical or dependent care expenses not covered by regular insurance. It's an excellent way to pay for dental bills and other items not covered fully by health insurance. Just remember that money left over in your account at the end of the year is lost to you.

The signup period for an FSA account for 2004 ends Dec. 8. That's the same deadline for the federal health insurance program signup. Don't miss either one of them.

•Mike Causey, senior editor at FederalNewsRadio.com, can be reached at 202/895-5132 or mcausey@federalnewsradio.com