Tuesday, February 3, 2009

Millions of retired federal and postal workers would receive a significant tax break under a legislative rider that could become part of the pending economic stimulus plan.

The proposal would permit the former feds to pay their health insurance premiums with pre-tax dollars. Depending on the premiums of their particular plan, retirees could save $300 to $800 a year in federal taxes.

The perk, known as Premium Conversion (PC), is available to still-working civil servants. Many of them don’t even know they have the benefit. But because it is not available after they retire, many workers don’t know what they will be missing until they’ve actually retired. That’s when the perk disappears.

President Clinton extended the PC option to active-duty civil servants. But it will take an act of Congress before it can be applied to retirees.

The National Active and Retired Federal Employees (NARFE) is leading the PC charge. It has called on its half-million members to write their House and Senate representatives to include the tax break in the economic stimulus bill. The House has already passed its version of the stimulus plan, which does not contain the retiree tax break. It is known as H.R. 1 on the legislative calendar.

NARFE is hoping the PC benefit can either be included in the Senate version (S.1 on the calendar) or, more likely, that Senate-House conferees will tuck it into the stimulus plan when they meet to hammer out a compromise. The Senate will begin floor debate this week, and the White House is pushing for quick approval of the compromise plan.

Bills to give the health premium tax break picked up a large number of co-sponsors last year. But it was sidetracked in part because Congress was preoccupied with elections. The potential loss of substantial revenue to the Treasury always has been a stumbling block to extending the benefit to retirees. One argument in favor of the plan is that retirees might use the tax break to buy more expensive - and more comprehensive - coverage. That could shift more of the costs of their overall medical care to private health insurance companies rather than to federal programs such as Medicare.

When it comes to lobbying Congress, former federal workers who know how the system works are not shy. On Friday, NARFE President Margaret L. Baptiste said that an “action alert” posted on the association’s Web site (www.narfe.org) had generated 10,589 e-mails to members of the House and Senate. They hope to swamp Capitol Hill this week to set the stage for putting PC into the final economic stimulus package.

Groups representing active federal workers (who enjoy the tax break) are pushing too because their members now lose the perk the day they retire.

You can track the progress of S.1 and H.R. 1 on line at: https://thomas.loc.gov.


Often in the year before they retire, civil servants under the newer Federal Employees Retirement System take a lot of sick leave. We’ve dubbed it FERS Flu.

Most federal and postal workers hired since 1984 are under the FERS system. Most feds hired before that time are under the very different Civil Service Retirement System. Most of the latter save up as much sick leave as possible for a very good reason: Money.

Although some FERS Flu victims may be genuinely sick as they approach retirement, it is also suspected that a lot of employees use up accumulated sick leave because, for them, it’s a use-it-or-lose-it deal. By contrast, workers under the older Civil Service Retirement System, CSRS, have an incentive to save their leave. Once they are otherwise eligible to retire (by virtue of age and time in government), CSRS employees can convert their unused sick leave to the equivalent of time spent on the job. In many instances, doing so boosts the lifetime federal annuity - indexed to inflation - by hundreds of dollars a month.

Legislation to vaccinate FERS employees against FERS Flu passed the House last year but ran out of steam in the Senate. Backers hope to revive it this year, arguing that it will save the taxpayers money in the long run by encouraging employees not to use leave when they aren’t sick. Giving them credit toward retirement would benefit both workers and taxpayers, they say.

c Mike Causey, senior editor at Federal News Radio AM 1050, can be reached at 202/895-5132 or mcauseyfederal newsradio.com.

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