- The Washington Times - Monday, December 8, 2003

The 2004 federal pay-raise standoff between Congress and the White House — which is becoming an annual affair — will cause major payroll problems for government agencies, cost the taxpayers a bundle and create problems that could take months, if not years, to solve.

It is hard to connect the dots, but it’s worthwhile if you are a fed who stands to get a pay raise in two installments next year, or a taxpayer who will get the bill — around $1 billion for each percentage point increase. Here’s the deal:

Last year, the president proposed a 3.1 percent white-collar federal pay raise. Congress then boosted the amount to 4.1 percent, but the add-on increase wasn’t approved in time, so it was made later in the year, and applied retroactively.

In the end, feds in the Washington-Baltimore area got a 3.1 percent raise in January and then some months later the congressional add-on, which along with locality pay totaled a 4.27 percent increase.

This year, the president proposed a 2 percent raise for January. Congress has taken some but not all of the steps to double the amount of the increase, but time is running out. That means feds likely will get 2 percent in January and the congressional add-on later.

It also means the government will have to print and implement two sets of pay tables, make retroactive payments when and if the higher amounts are approved, and deal with tens of thousands of feds who will retire in early January. Many of them will cash in annual leave that will be worth thousands of dollars.

Retirees will be paid at the higher 2004 rate. Once they get their lump-sum leave payments, thousands of dollars to thousands of employees, they will be due even more when and if Congress approves an add-on raise and makes it retroactive to Jan. 1.

That means agencies must refigure not only the amount of the annual leave payment due retirees, but also recompute their annuities, which are based on length of service and salary. Even a slight change in their final salary could alter the size of their pension.

The problem could be avoided if the president proposed an amount — the same percentage increase as he designates for uniformed military personnel — that Congress would accept. Or if Congress did what it was supposed to do, and approve things, like appropriations bills including the higher pay amount, before the Oct. 1 fiscal year deadline.

As is, the situation creates massive confusion and could result in some disputes that last for years, making some feds — who should appreciate an increase that is double the rate of inflation — angry when the paychecks finally arrive.

Flexible spending accounts

There is a lot of interest from retirees about the flexible spending accounts the government has authorized to help workers pay uncovered medical costs with pretax dollars. Next year, federal workers can put up to $4,000 in medical savings accounts and $5,000 in dependent care accounts via payroll deductions.

Unfortunately, the benefit is not available to retirees (federal or private sector) and won’t be unless Congress changes the tax code.

Allowing people to pay for extra medical costs — while giving them a tax break — is cost-effective. It shifts much of the burden of health care from the taxpayers to individuals and private firms. But retirees — who could use it most — can’t participate until Congress changes tax rules.

Feds can sign up for the flexible spending account program at their agency or over the Internet. They can put in anywhere from $250 to the maximum amount. Those who signed up this year (when the limit was $3,000 for a medical account) must sign up again if they want to put in the $4,000 limit for 2004. The open season for the flexible spending account program has been extended through Monday.

Mike Causey, senior editor at FederalNewsRadio.com, can be reached at 202/895-5132 or [email protected]

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