Under the new pension law President Reagan signed last month, federal workers planning to retire now have the option of getting a lump-sum, tax-free payment equal to all the money they contributed over the years to their pension plans.
But no agencies have any information about how the system works. The Office of Personnel Management's guidelines are being held up, in part because of the complexity of the legislation and in part because it's already been threatened with cancellation.
There is a chance that Congress may eliminate, or modify, the payment benefit in the pending tax overhaul package.
The tax-free pension payments would be worth about 18 months of salary, on average. For some highly paid, veteran workers, these one-time checks could amount to $70,000 or more.
The tax overhaul legislation is aimed at eliminating any recovery period allowing retirees to recover previously taxed pension contributions. For the typical retired civil servant that no-tax period lasts about 18 months.
That proposed change would require retirees to pay taxes immediately on the government contributions to their pension plans (about 93 percent of the total), prorated based on their life expectancies.
The lump-sum provision was quietly slipped into the new federal retirement law by the Senate Governmental Affairs Committee to soften the impact of tax reform.
Retirees who elect the up-front payment would reduce their subsequent monthly pension checks by about 8 percent, because their pension thereafter would be based only on the government contribution.
However, the Senate Finance Committee wrote language into its tax overhaul bill that could block the lump-sum option, or require retirees to pay prorated taxes on part of the payment. The House version of the tax overhaul doesn't have any such provision. The Senate and House are preparing to go to conference to write a compromise tax bill.
Until Congress agrees on a tax package, and OPM comes up with new guidelines, nobody knows if it will be allowed.
OPM has sent an advisory to federal agencies that the lump-sum payments are permissible for persons retiring after June 5, but also alerting them that guidelines won't be issued until tax reform is out of the way. No retirees can elect to take the payment until guidelines are issued.
OPM has promised to be in touch with all new retirees. But as a safeguard, anyone planning to retire should advise their agencies in writing that they may want to take advantage of the lump-sum payment. It won't obligate them to take it, but it will ensure that they will be notified when the issue is settled and the rules are published.