Legislation that would raise the retirement age for government employes from 55 to 65 is bogged down on the administration's drawing board. Reason: A dispute between the Office of Personnel Management and the Office of Management and Budget over grandfathering rights for current government workers.

Under the president's proposal, federal workers (who can now retire at 55 with 30 years service) would have to work until age 65 to get their full annuity, regardless of how much time they have in government. At present, those people can retire with an annuity equal to just over 56 percent of the average of their highest three years of salary.

If the president's plan is approved by Congress, a person's annuity would be reduced by 5 percent a year for each year the employe was under age 65 when he retired.

The OPM wants to grandfather-in anybody who is 55 or older at the time of enactment of the legislation regardless of how much time they have in government. That would mean anyone 55 or older (when the bill became law) could continue to work and retire before 65 without penalty--as long as they satisfied the requirements now in effect.

But some OMB officials are pushing a harder line. They would grandfather only those workers who are 55 with 30 years service at the time of enactment. In other words, people who were 55 with less than 30 years service would be subject to the new retirement age and penalties for retiring before age 65.

The bill--which also includes other changes in the retirement system--will not be introduced until the OPM vs. OMB squabble is settled.