Federal retirees faced with hefty 1987 tax bills on their lump-sum pension payments intend to take Uncle Sam to court next year, charging him with double-taxing their money.
Most federal workers now contribute 7 percent of their pay to the retirement fund. For high-paid employes with many years of service, those contributions, taken in a lump sum, can be worth up to $70,000.
Under a law enacted in mid-1986 retirees were given the option of taking then tax-free lump sum payments if they would accept reduced annuities. But the tax revision act passed later made up to 90 percent of the lump-sum payment subject to federal (and, in some cases, state) taxes.
Congress made the tax change by declaring that the payments were an amount "equal to" the employes' contribution, but did not represent previously taxed contributions. That changed everything and made the lump-sum option less attractive for many retirees.
Nearly 100,000 federal workers have retired since the lump-sum option became available. It isn't known how many have taken it.
The Senior Executives Association has been coordinating efforts of unhappy retirees. After a Dec. 1 meeting with lawyers at SEA's office, some retirees at the session have decided to take the issue to court next year. Still undecided is whether the lawsuit will be brought in the U.S. Tax Court, U.S. District Court or the Court of Claims.
SEA officials say it's important for individuals to join the lawsuit because any out-of-court settlement could cover only plaintiffs. To receive more information send a self-addressed envelope (with 39 cents postage) to SEA, P.O. Box 7610, Washington, D.C., 20044. SEA says it will send a packet of material about the pending lawsuit.
Senate-House budget conferees next week will decide whether to include 10,000 career and political executives in the 1988 pay freeze being considered for members of Congress. Rank-and-file white- collar federal workers are due a 2 percent raise in January. But the House-passed pay freeze language would include federal workers earning $72,500 or more per year as well as some or all members of the Senior Executive Service. The conference could accept that language or exclude the executives.
Today is the deadline for federal workers to pick their 1988 health plan. Those who miss the deadline will continue in their current health plan next year. Retirees who haven't received information from the Office of Personnel Management can get a 30-day extension if they make a written request postmarked today. Be sure to include a civil service retirement claim number. Write to: OPM, P.O. Box 4198, Iowa City, Iowa, 52244.
Federal workers have 14 working days to decide whether to switch into the new Federal Employees Retirement System. Unless Congress sets a new open season next year this is the last time to make a choice. At 1 p.m. tomorrow on WNTR radio (1050 AM) Jamie Cowen will compare the old and new pension plans. He helped design FERS when working in the Senate. He's now associated with a pension-counseling firm.