A Bill to Save Money for Federal Retirees

Active federal employees save about $820 a year because they are able to pay for health insurance out of pre-tax money. A bill introduced in the House would give the same benefit to federal civilian retirees as well as active duty military personnel and retirees.

No doubt, some federal retirees are wondering about their financial security. The drop in the value of stocks, including the Thrift Savings Plan stock funds, the rise in the cost of health insurance premiums, and the fact that expenses for the goods and services often purchased by federal retirees may increase faster than the items reflected in the inflation index may contribute to a feeling of unease or insecurity for some.

A new bill introduced in the House of Representatives would give an additional tax break to federal retirees and it is worth keeping an eye on this legislation as it could save retirees some money in future years.

The bill is entitled the `Federal and Military Retiree Health Care Equity Act’.

This bill, if enacted, would allow federal civilian annuitants as well as active duty military personnel and retirees to pay their health insurance premiums with pre-tax compensation (also known as “premium conversion”).

The reason that this bill is referred to as the "Health Care Equity Act" is because a similar provision has already been passed for most employees. Our tax code already allows employers to permit workers to pay for health insurance with pre-tax wages excluded from both income and Social Security payroll taxes. The executive branch began offering premium conversion plans to their employees in October 2000 and Congress extended the tax benefit to legislative branch workers in January 2001. However, if you are a federal retiree, you are not eligible to participate.

Not surprisingly, the National Active and Retired Federal Employees Association (NARFE) supports the legislation. According to Margaret Baptiste, the President of NARFE, “Many federal employees don’t even know they enjoy an average tax savings of about $820 a year because Premium Conversion is an automatic benefit handled by their employing agency. In fact, they may not know they have it until it is gone when they retire,” Baptiste added. “That’s why federal workers who will want premium conversion in the future — when they’ll need it the most — should be fighting for it now by helping us support this important legislation.

The legislation has been introduced by Reps. Chris Van Hollen (D-MD), Frank Wolf (R-VA), Gerry Connolly (D-VA) and Senator Jim Webb (D-VA). The bills introduced are H.R. 1203 and S. 491.

The bill has been referred to the Referred to the Committee on Ways and Means, and in addition to the Committees on Oversight and Government Reform, and Armed Services in the House. The bill has 19 co-sponsors.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47