Remember the Pony, Puppy, or Python that you wanted but never got for Christmas?
Year after year you were disappointed even after you had given it a name and set aside a special place for your new best friend who never arrived.
Well we’ve all grown up now (although I collect WW2 model airplanes and dinosaurs to be held in trust for my grandchildren). As realistic adults our wishlists, be it for more hair, fewer hassles or a firmer whatever, have changed. Nowhere is this more true than in the federal government where workers, well insulated from layoffs and economic travails, still have to depend on Congress and the White House for their pay and benefits. So far this year feds have done very well. But many say it could be a lot better.
Although many feds are jubliant over the prospect of a Roth investment option coming to their Thrift Savings Plan in 2011. But many are ticked off with Congress/the White House because of proposed benefits approved by the House but cancelled by the Senate. The President signed the Senate version of the bill yesterday. It has the all-important Roth option, but nothing else directly related to feds.
Question: J.B., a claims rep with Social Security said “I think the plan to allow federal retirees to pay their health plan premiums with pre-tax dollars was the most valuable of all. Is there any chance of it passing in the future?”
Short Answer: No!
He’s talking about a perq (available to working feds) called Premium Conversion. PC lets employees pay their share of health premiums with pre-tax dollars. That results in a federal tax savings of $300 to $800 depending on the employees plan and tax bracket.
PC is not available to retirees (federal or nonfederal) and won’t be unless and until Congress changes federal tax laws. That means if you are a working fed, you enjoy the tax break but lose it as soon as you retire.
Congress (under Democrats and Republicans) has resisted efforts to extend PC to retirees because of the revenue loss to the government. Groups like the National Active and Retired Federal Employees Association are trying to convince Capitol Hill that it would actually save the taxpayers money in the long-run because PC would permit many retirees to buy better private sector coverage.
Robert H. e-mails that “I’ve heard something about a repeal of the Windfall formula but can’t get any information on it. Can you advise?”
Can do, but you won’t like the information. Active and retired feds who are eligible for Social Security often take a big hit when they apply for benefits. That’s because Congress long ago enacted the so-called Evil Twins: Windfall (or WEP) and Offset (known as the GPO). The Windfall formula can reduce the earned Social Security benefit anticipated by a CSRS retiree. Offset can eliminate the unearned spousal Social Security benefit of the CSRS retiree.
Bills to modify or repeal the Windfall and Offset formulas are introduced each year. And they get a lot of co-sponsors. But they never get past the House and Senate tax-writing committees, regardless of who is president or which party controls Congress. Calling them long-shots is being optimistic. For more on the history of WEP and GPO, click here.