Federal Retirement Reform/Making Further Progress in Ending Military Families Tax
On April 1st, the House passed Federal Retirement Reform/Making Further Progress in Ending Military Families Tax, H.R. 1804. This bill contains a key provision that fulfills an objective of military family advocates by making further progress in ending the Military Families Tax, which unfairly penalizes the 55,000 survivors, most of them widows, of those who died as a result of their service-connected injuries.
This bill also includes important retirement reforms for federal employees and members of the armed forces. For example, it modernizes the Thrift Savings Plan (TSP) for federal employees, by providing for automatic enrollment for those eligible to participate. In the case of uniformed members of the armed services, the decision is left to the military departments.
It also creates within the TSP a Roth-style investment retirement account option that allows workers to invest after-tax dollars, which is particularly beneficial for new enlistees in the armed services.
The bill’s provisions generate net savings for the federal government. The rule for consideration of H.R. 1256, Family Smoking Prevention and Tobacco Control Act, provides that, upon the bill’s passage, the text of H.R. 1804 will be added – ensuring that the tobacco control bill meets PAYGO.
An overview of some of the bill’s key provisions:
Makes further progress in ending the Military Families Tax. The bill makes further progress in ending the Military Families Tax, which has been a priority of military family advocates for many years. The Military Families Tax unfairly penalizes the 55,000 survivors, most of them widows, of those who died as a result of their service-connected injuries. Currently these widows lose most of their survivor benefits if they also receive Dependency and Indemnity Compensation benefits (because their spouse died of a service-connected injury), but this measure increases the special survivor indemnity allowance enacted in 2007 to make progress in ending this tax – increasing the allowance by $35 per month in FY 2010, rising to an increase of $245 per month in FY 2016.
Provides for automatic enrollment in TSP. The bill provides for automatic enrollment for federal employees who are eligible to participate in TSP, with an option to “opt-out” instead of “opt-in.” In the case of uniformed members of the armed services, the decision is left to the military departments.
Creates within the TSP a Roth-style investment retirement account option. The bill creates within the TSP a Roth-style investment retirement account option that allows workers to invest after-tax dollars; since those choosing the Roth option would be taxed in the near term, rather than on withdrawal, revenue would increase. This option could be attractive to federal employees at both the lower and upper ends of the wage scale, and is particularly beneficial to some members of the armed forces.
Provides for additional self-directed investment options. The bill provides the TSP Board with the authority to add additional self-directed investment options, much like mutual fund options that are available in the private sector.
Provides for other retirement reforms. The bill includes other retirement reforms, such as allowing employees covered by the Federal Employees Retirement System (FERS) to receive credit for unused sick leave toward their retirement annuity, as is currently the case for employees covered by the older Civil Service Retirement System.
The text of this bill will be added to the Family Smoking Prevention and Tobacco Control Act. The bill’s provisions generate net savings for the federal government. The rule for consideration of H.R. 1256, Family Smoking Prevention and Tobacco Control Act, provides that, upon the bill’s passage, the text of H.R. 1804 will be added – ensuring that the tobacco control bill meets PAYGO.