- The Washington Times - Monday, August 10, 2009

Current and former members of the federal family have a lot riding on the massive, must-pass defense-authorization package Congress will hammer out sometime in September.

At stake for current federal workers are plans that would make it more attractive for former feds to resume their government careers, for retirees to return to the fold, to permit workers to go part-time into retirement and to cut down on sick-leave usage.

Bear in mind, this Congress has already given feds a big-time benefit. That is the introduction (in mid-2011) of a Roth option within the giant federal Thrift Savings Plan. That would permit feds to fund both pre-tax 401(k) accounts and an after-tax Roth option. Workers could put a total of up to $16,500 in either account or split the amount between the traditional investment option and the Roth plan.

That’s the biggest improvement in decades for government workers. And there is more, maybe, to come.

The Obama administration welcomed the Roth option because it will mean more immediate revenue to the Treasury. But it objected to the cost of some other items that were originally in the House version of the tobacco bill.

The Senate stripped those items out of the tobacco bill, but now they are back — this time as embeds into the defense-authorization plan, one in the Senate version and four as part of the House-approved plan.

Unlike the tobacco bill, the final defense bill will go to a Senate-House conference. Lobbyists representing active and retired employees are working on conferees, many of whom are back in their home districts, and on staff who stayed behind to work on the bills.

The options up for consideration are:

• A change that would make it possible for former feds who worked under the FERS (Federal Employees Retirement System) to “buy back” their previous service time. That would benefit a number of former Clinton appointees who have returned to government jobs or plan to do so. Under current rules, FERS returnees don’t get full credit for their previous years of government service.

• Make up for a glitch in federal retirement regulations that punishes longtime workers under the old Civil Service Retirement System. Currently, those who go part-time at the end of their careers take a hit in their final pension. Under the pending plan, they, like FERS employees, could transition to part-time employment with their annuities computed on their highest three-year average salary rather than their actual part-time pay.

• Remove a pension-buster for federal workers in Alaska and Hawaii. They now get tax-free cost-of-living allowances. That’s a great deal while they’re working, but it hurts when they retire because those allowances (now around 23 percent of pay) are not used in computing their pensions. The result: Many find that when they retire, they can’t afford to live where they worked. Especially in Hawaii.

The fixer would be to phase out the tax-free locality allowances and phase in locality pay differentials like those enjoyed by feds in Washington, New York, San Francisco, Los Angeles, San Francisco and other expensive cities. The administration will like this one because it would generate tax revenue.

• Give FERS employees, who are now under a use-it-or-lose-it sick leave system, an incentive to stay healthy. If approved, FERS employees — who make up 80 percent of the work force — would get service-time credit for unused sick leave when otherwise eligible to retire. CSRS employees already have it. A year of unused sick leave (2,080 hours) can boost the CSRS annuity by 2 percent. It would raise the FERS retiree benefit by about 1 percent.

All of these provisions are in the House-passed version of the defense-authorization bill.

The Senate version of the bill includes a provision that would permit retired federal workers to return to work without taking a salary offset equal to the amount of their annuity. This penalty, which doesn’t apply to private-sector retirees who join government, makes it difficult for the government to lure back retirees with special skills. The Defense Department can and does regularly waive the offset. But it is hard for other agencies to make a case, unless the law is changed.

So what are the odds any of these proposals will pass?

Lobbyists, who are paid to put the best foot forward while always fearing the worst, say the Alaska-Hawaii pay change is the front-runner. It would relieve Uncle Sam of giving people large tax-free payments by putting them under the locality pay system where all their salary is taxable.

It will be weeks before potential beneficiaries of any of these proposals know their fate. The House and Senate must pass the big defense bill, but it could be delayed because of the push for health care reform legislation.

Mike Causey’s Federal Report runs Mondays. Contact him at [email protected] or 202/895-5132.

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