- The Washington Times - Monday, March 22, 2004

On-the-job feds will lose both income and a big tax break unless Congress makes it easier for them to pay health care premiums on their retirement-reduced incomes. The feds may have to call out the Marines, and other military services, to win this one.

Now that the economy is picking up and 401(k) balances are rising again, officials expect several hundred thousand feds to retire over the next five years. The much-feared and long-predicted “brain drain” was put on hold by the recession, the shrinking outside job market and the lean years of the stock market. Now it could be for real.

As the federal work force, with an average age of 47, gets older, and with buyouts and early retirement offers coming, retirements could pick up. Although many feds have planned well for retirement and most will be leaving on inflation-indexed annuities, their income still will drop anywhere from 30 percent to 50 percent when they leave government.

Ironically, as worker-to-retiree income drops, the retirees will lose a vital tax break. It allows them to save $300 to $500 a year in taxes by paying health care premiums in before-tax dollars. The “premium conversion” option is open to feds, but not when they retire. At least not yet.

A majority of the House (324 of 435 members) have signed on to legislation submitted by Rep. Thomas M. Davis III, Virginia Republican, that would extend the perk to retirees. In the Senate, an identical bill by Sens. John W. Warner, Virginia Republican, and Susan Collins, Maine Republican, has 54 pledged votes out of 100 senators.

But Congress is stalled because of the estimated $1.7 billion in lost tax revenue that would grow out of premium conversion for retirees.

Backers hope to call in the Marines — and Army, Navy and Air Force — to help. Premium conversion is of little value to active military personnel, but once they retire they will pay more for health care coverage and premium conversion could help out. Lobbyists hope to enlist the military in the fight for premium conversion, hoping that Congress will the see the light.

Pay raise

Optimistic white-collar feds hope to get the full amount of their January 2004 pay raise (4.42 percent in the Washington/Baltimore area) before Congress settles on the amount of their January 2005 increase. Delays by Congress and the White House stalled this year’s raise. Lucky feds will get their raise, retroactive to January, by mid-April. Some will wait longer.

Meantime, the Senate Budget Committee says yes to language that would guarantee civilians the same 3.5 percent raise next year that the White House has promised military personnel in January. The president’s budget calls for a 1.5 percent civilian increase. But the House Budget Committee balked at the “parity” language, setting the stage for a repeat of the Congress versus White House pay battle that Congress always has won.

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

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