Offices of local members of Congress are being swamped with calls from anxious federal workers who want to know if they should plan to retire early next month to beat a proposed change in tax rules.
The employes are concerned about the tax reform bill passed by the House. Starting July 1, it would eliminate a tax-free retirement period for federal and postal workers, state and county employes and others who contribute to their own pension programs. About 250,000 federal employes are eligible to retire now; 17 percent of them live here.
Because of the way the retirement system is administered, federal workers might have to make their retirement plans by June 3. As that date nears, say staff members in the offices of Maryland Democratic Reps. Steny Hoyer and Mike Barnes and Virginia GOP Reps. Frank Wolf and Stan Parris, inquiries have increased.
A spokesman for the Federal Government Service Task Force, which serves as a congressional civil service caucus, said, "Half the calls we get are from people wanting to know when they should retire and the other half are from new workers complaining about the new 5.7 percent retirement deduction from their paychecks."
While it is easy to answer the latter question -- the deductions will be stopped soon -- there is no safe, sure or solid advice for retirees based on what Congress may, or may not, do.
The government service task force estimates that the proposed tax law change would mean a tax bite of $10,000 in the first three years of retirement for the typical U.S. worker, and much more for higher paid employes.
The amount of taxes workers would pay over a normal lifetime would be unchanged. But retirees would begin paying sooner, on prorated portions of the government contribution, once the recovery period was ended.
Currently, workers who contribute already-taxed portions of their income to pension funds are exempt from taxes on their pensions until they have recovered all their contributions. That recovery period can last up to three years, although the typical federal retiree gets back all contributions in about 18 months.
The Senate version of tax reform would eliminate the recovery period in two steps, beginning in January 1988.
The reason people are worried about retiring in early June to beat a July 1 deadline has to do with a wrinkle in federal retirement rules. It came about several years ago when Congress made a change to benefit retiring lawmakers.
As a result of that change, pensions of employes who retire by the 3rd of the month begin the next day. Those retiring after the 3rd of the month have annuities that begin the following month.
G. Jerry Shaw, general counsel of the Senior Executives Association, said yesterday that if the July 1 effective date proposed by the House becomes effective, "employes, to be safe, must retire by June 3 in order to ensure that they will not be taxed under new rules provided in the [House] tax reform act."
Shaw and others say they don't like to give advice on this subject, because there are so many ifs.
Congress might fail to approve tax reform, or a later effective date (that would benefit members of Congress retiring early next year) could be approved.
But if avoiding the possible pension tax change is an overriding factor in your retirement planning, federal unions and congressional offices are saying the only way to be 100 percent sure of beating the July 1 deadline is to retire by June 3.