- The Washington Times - Tuesday, January 21, 2003

Most federal and postal workers expect that their income will drop when they retire. The same goes for military personnel. Pensions aren't supposed to be the same as paychecks, and chances are the balances in their Thrift Savings Plan, commonly called 401(k) plans, have slipped big-time during the past couple of years.
But few feds facing retirement expect that their taxes could go up while their income drops. Here's the deal, starting with pay: For most civil servants the difference between their salary and their civil service annuity will be anywhere from 20 percent to 50 percent. Those who manage to last 40-plus years on the job will get a retirement benefit, indexed to inflation, equal to about 80 percent of their final salary.
Earnings from investments in the TSP will account for a big chunk of the after-retirement money that retired feds and military personnel have to spend. But with the stock funds (which represent nearly half the total investment) down more than 20 percent last year, many people will delay retirement and/or withdrawals until the market rebounds.
All federal and postal workers, in the meantime, face guaranteed loss of a significant (for many) tax break when they retire. It's the ability that workers have to pay their health insurance premiums with pre-tax dollars. Doing that reduces gross income and that, in turn, reduces the tax bite. An active-duty federal worker whose premiums are $1,500 per year can cut taxable income by that amount. Postal workers (who pay lower health premiums while working) will face stiffer premiums, and lose their ability to pay their health premiums with pre-tax dollars when they retire.
The National Association of Retired Federal Employees estimates that the so-called premium-conversion tax break would save the typical retired fed anywhere from $200 to $500 in taxes per year.
To the rescue of feds whether working or retired comes Rep. Thomas M. Davis III, Virginia Republican. Mr. Davis has a couple of things going for him. He's high in majority leadership in the House. He owes his easy re-election victories to votes from current and retired federal and postal workers. And effective this month he is chairman of the House Government Reform Committee.
One more thing. Last year the bill that would allow retired feds to pay premiums in pre-tax dollars was introduced by, you guessed it, Mr. Davis.
The Government Reform Committee can't make the legislation happen. That will be up to the House Ways and Means and the Budget committees. And it doesn't automatically put the White House and its bean-counting Office of Management and Budget on the side of the retired feds. But given Mr. Davis' clout in Congress, it's the best shot thanks to years of effective lobbying by retiree groups and federal and postal unions the tax break bill has had. Ever.
What health plan?
Federal and postal workers have, according to most experts, the best health plan coverage in the nation. Unlike in most private health plans, feds (and spouses) can retain coverage for life, paying the same premiums as younger, healthy workers. Most private health plans drop retirees from coverage. Many private firms no longer or never did offer workers health coverage. That's one reason that part-time and contract employees (who find their own health plans) are popular in industry.
But having the best health program doesn't help if you can't afford it. And that's what is happening, according to Rep. Steny H. Hoyer, Maryland Democrat. Mr. Hoyer says about 250,000 feds have dropped out of the federal health program because they can't afford recent premium increases. While that's less than most private health plans increased premiums ask a friend who works for GE it's still too much for many low-income feds, according to Mr. Hoyer.
The solution: Increase the federal payment to civil service health premiums. Nonpostal workers pay about 29 percent of their total premium, with the government picking up the rest. Mr. Hoyer wants to cut the feds' share down to 20 percent by raising the government contribution to 80 percent. Any such change will require the approval of Congress (possible) and the White House (not so likely).
Pay raises
If election-preoccupied members of Congress hadn't been so civil in the fall, federal workers would now be enjoying a 4.1 percent pay raise. Instead they are living with the 3.1 percent approved by the White House.
The House and Senate approved, in essence, a 4.1 percent pay raise for white collar federal workers as part of the Treasury-Postal Service appropriations bills each produced. But instead of slugging it out and risking a government shutdown (before the election) both parties and both houses of Congress left town, and left the government running on the equivalent of temporary tags. Most federal agencies are still operating on so-called continuing resolutions that permit them to spend at levels of last year.
As long as those CRs are in effect and no government programs face shutdowns there is major incentive for Congress to pass the bills it should have cleared last year. And until the Treasury package (or something like it) becomes law, feds will have to make do with a 3.1 percent raise, which should show up in checks shortly. When, or if, the extra one percentage point approved by Congress passes, it will probably be retroactive to the first pay period on or after Jan. 1.


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