Tax reform proposals in the Senate and House would make a major change in the after-retirement tax picture for 17 million federal, state and local government employes, teachers, firefighters and others who contribute to their own pension plans.
Under current law, worker contributions to pension plans -- which already have been taxed as part of salary -- are not subject to federal taxes until an employe retires and gets back, in pension, all the money he or she put in. Typically, federal retirees get back all their contributions in 18 months, meaning they pay no federal taxes on those benefits during that time.
Most people eligible for the benefit make it a major part of their retirement planning.
Any income they get during that period is taxed at a lower rate because their pensions are not subject to taxes.
Both the Senate and House proposals would change that.
The House version of tax reform would subject a portion of pensions to taxes prorated on the life expectancy of the individual.
Although the bill carries a July 1 effective date, many organizations advise workers who want to beat the deadline to be prepared to retire as early as June 3.
The draft tax reform bill from the Senate Finance Committee would do essentially the same thing but would phase out the tax-free period over two years.
Under the Senate plan, 50 percent of any benefit beginning in January 1987 would be taxed under the same formula proposed by the House. Starting in January 1988, all benefits would be taxed.
Sen. Paul S. Trible Jr. (R-Va.) is trying to drum up enough Senate votes to kill the proposal, which, he says, "only postpones the disastrous consequences of taxing retirement benefits."
Many federal agencies -- from the CIA to the IRS -- have warned that if the pension tax rules are changed there could be a flood of retirements that could cripple their operations. NASA estimates that 40 percent of its top scientific staff is eligible to retire right now.
Federal and postal unions and professional organizations are opposed to the pension tax change and are trying to get support from similar groups representing state and local government workers. More of them -- because local employes outnumber feds by about 4 to 1 -- would be adversely affected if the change is made.
Once the Senate approves its version of tax reform, its bill and the legislation already approved by the House will go to a Senate-House conference. It will be made up of members of the Senate Finance Committee and the House Ways and Means Committee. They could approve either version of the pension legislation, change the effective dates or drop the proposal entirely.
Meanwhile, many federal workers -- about 200,000 are eligible to retire -- are watching the tax reform situation for whatever new surprises Congress has in store for them. Sessions
The Senior Executives Association meets Tuesday at the Touchdown Club. Luncheon speaker Marvin Cetron, president of Forecasting International, will talk about management trends in government. Call 535-4328 for information.
American University is forming its key executive program, a special prep course for upwardly mobile feds at Grade 14 and above. The 20-month session begins in September and leads to a master's degree in public administration. For details, call Michael G. Hansen, 885-3857.