- The Washington Times - Monday, May 19, 2003

Federal workers could get a tax break when they retire that could be used for much better health insurance coverage under a bill being pushed by two key Republican power brokers.

The bills — by Rep. Thomas M. Davis III and Sen. John W. Warner, both of Virginia — would allow federal retirees and postal workers to pay their health premiums with pretax dollars, lowering their taxable income.

The “premium conversion” perk will save the average retiree between $300 and $500 each year in federal taxes. That money would enable many to purchase better health coverage, or to spend it for long-term-care insurance or some other safety net for the elderly.

As of this week, Mr. Davis has persuaded 217 of the 435 House members to sign on his bill. Mr. Warner has picked up 27 (out of 100) Senate co-sponsors. Those head counts put them well ahead of the number of legislators who are backing other pro-fed, pro-retiree bills.

Buyouts

Look for a half dozen federal agencies to seek “reshaping buyout” authority from the Office of Personnel Management (OPM).

In many cases, it would be accompanied with early-retirement offers, allowing anyone with 25 years of service, or employees who are at least 50 with 20 years of service, to retire on immediate benefits. The maximum buyout payment would be $25,000 before deductions, or about $16,000 take-home.

Reshaping buyouts were designed for the Defense Department, which is officially suffering from a major “skills imbalance.” Translation: It has too many people who can’t hack it in the high-tech world. Half of DoD’s work force will be eligible for retirement by 2005, but retirements governmentwide are running below normal.

Reshaping buyouts are better than earlier (and existing) buyout programs because agencies save money and jobs. They don’t have to give up a slot when they buy out an employee, and they don’t have to reimburse the civil service retirement fund to help finance an early retiree’s added (and longer) costs to the fund.

Buyouts are most cost effective early in the fiscal year (October, November, December), which is when most agencies will offer them.

Flexible spending accounts

The early open season started yesterday for the new Flexible Spending Accounts program. With careful planning you can save lots of money on taxes, and be able to afford medical and dental procedures that aren’t covered by your regular health plan.

The FSA program will begin in July — assuming your agency is ready, willing and able to do it —and will cover expenses incurred after you’ve signed up for an account. You can earmark up to $3,000 (pretax) for a medical FSA and up to $5,000 for a dependent care FSA.

FSAs will be funded by a payroll deduction. The company running the program will “front” you if your bills are higher than the amount available in your FSA account — provided the size of the account you are committed to fund will cover the costs. You can check out the program on the OPM Website, www.opm.gov or go to federalnewsradio.com.

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


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