Chao Questions Tax ?Penalty? on Retiree Work

Washington, June 20, 2001 ( ? Labor Secretary Elaine Chao in an interview with Wednesday called for a close look at tax rules that penalize early retirees who reenter the workforce while retaining pension benefits.

?These laws, rules and regulations need to be examined to see whether they should be changed,? Chao said immediately following the conclusion of the 21 st Century Workforce Summit in the MCI Center here. ?Our country must do something about it.?

Her remarks followed a speech earlier in the day in which she called for renewed attention on demographic issues facing the workplace (see Demographic Landslide Could Bury Employers ). The labor secretary called for ?the concept of phased retirement ? letting seniors gradually transition from full-time to part-time work, while giving them partial access to pension benefits.?

Major Issue

Early retirement is already a reality for an increasing number of employees, who nevertheless often want to reenter the workforce. They are wary of doing so, because they?re taxed too heavily on the combination of their income and pension benefits, according to Chao.

?People retire early and they get their retirement benefits. If they go back to work, they?re taxed and so, if we are facing a shrinking workforce, we need to make sure that retirees who want to be part-time workers will not have their labors penalized,? Chao said. ?I think it?s a major issue.?

She offered the example of the federal government not being able to attract skilled retired military or civilian retirees, because ?they?re taxed very heavily or they cannot be compensated at all, because they have a pension.?

No Plans

The government needs to understand this issue better, according to Chao. ?Changes cannot occur without an understanding of the realities of the workplace,? she said. ?There has to be a growing sense that this is an issue.?

Yet the secretary does not yet have any concrete plans for the initiative, not even as a part of the new Office of the 21 st Century Workforce the president created today by Executive Order. ?We have no plans to look at that in particular,? Chao said, continuing: ?But we want to engage more people in discussing overall workplace and workforce issues. This might be one of them, but that is not on our agenda. It?s whatever the discussion brings up.?