Tax Bill Confusion Pushes Federal Workers to Retire

Thousands of public employees appear to be on the verge of taking early retirement this month to escape a possible pension tax change proposed in the tax revision bill passed by the House last year, government officials said Tuesday.

And scores of federal workers already have quit because of an apparently mistaken belief that they had to retire by Tuesday to avoid any chance of being affected by new pension rules.

“There’s been an incredible flood of panic,” said Pat Dix, a lobbyist at the National Education Assn., a union representing public schoolteachers. “We’ve received thousands of phone calls from teachers who think they have to make an immediate do-or-die decision.”

Officials do not expect the tax rule, which would postpone some of the tax-free pension benefits to which federal retirees and many other public employees are entitled, to become effective retroactively as of next month, as the House proposes.

The Senate is scheduled today to begin debating a different version of a tax revision bill, which would postpone the change until 1988. The differences between the two bills would have to be settled by a House-Senate conference committee before a new tax code could become law.

Nonetheless, officials at the Office of Personnel Management, which oversees the federal civil service, have not clarified the situation, and many federal workers apparently are rushing to retire by the end of June to avoid any risk that the new law might govern their pensions.

“It’s a totally confusing situation, and (the Office of Personnel Management) has demonstrated real callousness by refusing to say anything about the matter,” said Rep. Tony P. Hall (D-Ohio), who is attempting to postpone implementation of the pension change until after a tax bill becomes law.

Ed Shell, deputy director of public affairs at the personnel office, said: “No legislation has been passed, so we’re not giving any advice at this stage. It’s not anything that we’re concerned about.”

No agency has collected figures on how many public employees already have decided to take early retirement. But scattered reports from several federal offices suggest that dozens of employees abruptly decided to retire in the last few days.

Spurt of Retirements

In one Navy office with 13,000 civilian employees, for example, 51 workers announced retirement in the first three days of June, compared with 41 during the entire month last year. In May, 64 employees in the office retired, three times as many as in May, 1985.

Several other bureaus in the Defense Department report similar experiences, and officials for agencies ranging from the Post Office to the Department of Health and Human Services say that they have received requests from hundreds of employees about the possibility of early retirement this month.

Representatives of government employee unions report thousands of inquiries from workers about the proposed tax law change. “People have planned for their retirement, and many of them are hysterical because they really don’t know what to do,” said Maureen Gilman of the National Treasury Employees Union.

Although the Congressional Research Service recently issued an opinion saying that federal workers may retire under current pension rules as late as June 30 and not be subject to the House proposal, personnel officials at some federal agencies told workers that June 3 was the last day for federal employees to retire without being affected by any possible change in tax law.

Tax-Free Pension Income

Under current law, public employees who paid into their own pension plans receive tax-free pension income for as long as three years on the theory that this share of benefits simply represents their own contributions, which had already been taxed.

Under the tax bill passed by the House, such public employees would have to begin paying taxes immediately on retirement and would be required to spread the tax-free part of their pension over many years.

The House proposal, if implemented, would boost federal revenues by as much as $10 billion over five years. The Senate bill, which would delay putting the change into effect until 1988, would raise about $5 billion over the next five years.

“We don’t think the change is such a terrible blow to federal workers,” said Jim Jaffe, a spokesman for the House Ways and Means Committee. “In the long run, they would do at least as well under our bill as under current law. In any event, we’re not going to do anything about the effective date before we go into conference.”