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Kildee's new bill revises tax penalty for state and local correctional officers

 Under current IRS tax code, state and local correctional officers have to pay a 10% tax on their pensions if they retire before the age of 60.
Matthew Ansley
Under current IRS tax code, state and local correctional officers have to pay a 10% tax on their pensions if they retire before the age of 60.

Michigan's fifth district congressman Dan Kildee, D-Flint, recently introduced a bill in the House Ways and Means Committee to reduce a federal tax penalty for correctional officers who chose to retire early.

The bill would eliminate a 10% federal tax on withdrawals from retirement accounts for state and local correctional officers who chose to retire before the age of 60.

"Eliminating this penalty will go a long way for us and our families to have some dignity toward retirement for however long we have left," said Ray Sholtz, a correctional officer at the St. Louis Correctional Facility in Gratiot County. Sholtz is also the State Vice President and the Chief of Staff for the Michigan Corrections Organization.

According to a study from Desert Waters Correctional Outreach, nearly 70% of correctional officers are subject to moderate to extreme levels of violence, injury and death events among staff members. The life expectancy rate for correctional officers is also 12 years lower than the general population, according to a 2011 study on correctional officers in the state of Florida.

Sholtz said that many correctional officers consider retirement as early as 51 after they have served for 25 years due to the grueling nature of the work. Many of the officers Sholtz knows will "probably work themselves into the ground to not pay it," Shultz said. "10% is a lot."

Rick Brewer spoke with Congressman Kildee about how this bill could impact correctional officers in Michigan and how it may change recruitment and retention efforts.

This transcript has been lighted edited for clarity and length.

Rick Brewer: Why do you want to introduce this legislation now?

Rep. Dan Kildee: Well, it's important because a piece of legislation on pension security, it's called secure 2.0 is moving. And we think this fits within that. And it could be that we'll get this done by the end of the year. So I want to make sure that state and local correctional officers get the same treatment that correctional officers in the federal system and other public public safety workers get when it comes to their pensions. If we don't act on it now, we could lose the opportunity, as the secure 2.0 legislation makes its way through the process.

Rick Brewer: Why have federal corrections officers been exempt from this tax, but ones at the state and local level have not?

Rep. Dan Kildee: You know, it's hard to explain because I think it was just an oversight, a mistake. Police officers, other public safety workers, have been covered by this because it's been well recognized that those professions often result in a retirement earlier than in other professions where the physical requirements are not as serious. I think it was an oversight. It was one that I think should have been corrected when the legislation was written long before I was in Congress. But now that we see the opportunity with a retirement bill moving, we heard from state correction officers about this problem only recently and we decided to do what we could to try to fix it.

Courtesy of Congressman Kildee's Office
Michigan Congressman Dan Kildee, D-Flint, speaking at a press conference in Washington DC on a bill to provide funding to police departments with fewer than 200 officers in May 2022.

Rick Brewer: Give people a sense of how early sometimes correctional officers retire before the age of 60, because obviously, it is a grueling job. But if that number is low, the tax change may only impact a small number of officers. How do you respond to that type of criticism?

Rep. Dan Kildee: Well, I mean, there are like about 6,500 corrections officers employed at Michigan prisons and at our Center for Forensic Psychiatry, which also would be covered. So while it might be a small amount, it's really a matter of fairness and justice for these employees. And every chance we get to try to create a retirement system that is more fair and more predictable, we want to do that. In the case of corrections officers, they may work 20 or 25 years. And if an individual starts in early 20s that could mean that they're retiring at an age that in order for them to access their pension would require a 10% penalty on top of whatever tax they would pay on the income. We want to eliminate that 10% tax penalty because these officers very often are in a position where they have no choice but to retire. And it doesn't seem fair to them to penalize them for a profession, which is really hard. We shouldn't put them in a position where they have to pay an additional price when they retire for taking on a tough job.

Congressman Kildee discusses his bill to reform the early retirement tax code for state and local correctional officers.

Rick Brewer: As you well know, Congressman, recruiting and retaining correctional officers is difficult. And obviously the past two years have not made the situation any better and the shortage of officers is nationwide. But explain to me why this tax change won't make the current shortage of officers worse if they're incentivized to potentially retire early.

Rep. Dan Kildee: Well, they're not really incentivized to retire early they're just not penalize when they're forced to retire, number one. Secondly, I think it makes it easier to recruit people to this profession if they know that they're not going to be penalized for taking retirement when they're eligible. So there's two sides to the coin. And I don't think it forces people or incentivizes people to retire as much is it might be one of the ways to attract more people to this opportunity by telling them, look, we're not going to put you in a position where you have to retire at a younger age, because you're going to pay a penalty for having done that.

Rick Brewer: Congressman, tell me about what you are hearing from individual correctional officers in mid-Michigan.

Rep. Dan Kildee: They want to see this change. They are concerned that members are either paying the penalty or deferring their retirement. Paying the penalty is not fair to them defending their retirement is really not good for the corrections department itself. If people are ready to retire, they should retire. So what they're mostly concerned about is those employees. And they're also concerned about just basic fairness.

Rick Brewer: Congressman Dan Kildee, thank you so much for your time today.

Rep. Dan Kildee: All right, my pleasure. Thank you.

Rick joined WCMU as a general assignment reporter in March 2022.