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Changes, reforms to military retirement system are certain

Thursday, July 30, 2015

Far-reaching military retirement reforms proposed by the Military Compensation and Retirement Modernization Commission (MCRMC) in January 2015 have been largely adopted by Congress and DoD.

The reforms include a pension reduction from 2.5 percent to 2.0 percent per year of service under the current High-3 retirement system.

For retirees who serve 20 years, this would reduce annual pensions from 50 percent of their final basic pay to 40 percent. In addition, the MCRMC proposed the creation of a 401(k)-style investment account that would match up to 5 percent of base pay.

DoD’s recently-released recommendations on a "blended" retirement system would also provide individual investment accounts for all troops and would provide government contributions to those accounts as part of a Thrift Savings Plan (TSP).

However, the Pentagon is urging Congress to make some modest changes to its plans and AUSA agrees.

The DoD proposal would:

Change a proposal contained in the Senate’s policy bill which would give service members retiring after 20 years of service the option to forgo traditional monthly pension checks and instead receive a lump-sum payment immediately upon leaving military service.

We agree with DoD that such a lump-sum payment is a "smart financial decision in very limited circumstances."

Modify the MCRMC and Congress’ proposed lump-sum cash payment that would be made at the 12th year of service. Congress would make this payment if service members agree to stay in uniform for an additional four years.

The Pentagon would eliminate the guaranteed minimum payment for troops and wants more flexibility for the services to determine when and how much continuation pay to offer individual troops.

The continuation pay would result in more and higher cash payments going to midcareer troops according to DoD officials, and would provide a critical incentive designed to promote retention.

Continue government contributions to TSP accounts for the duration of service. (Initial proposals called for stopping those payments after 20 years of service.)

Finally, AUSA strongly believes that financial literacy training for all soldiers is essential.

Education will be critical to teach the value and necessity of saving for the future.

Why did Democrats torpedo the defense spending bill? On June 11, Republican and Democratic members of the Senate Appropriations Committee approved the fiscal 2016 defense sending bill, 27-3.

On June 18, those same Democrats joined forces with the rest of their party and blocked the measure from reaching the floor for debate and a full vote. The 50-45 vote failed to achieve the 60 votes needed to advance the bill.

Democrats are opposed to the GOP maneuver that added $38 billion to the Overseas Contingency Operations (OCO) fund.

Since the OCO fund is not subjected to budget caps, this would allow the Pentagon to work around sequestration spending caps enacted by the 2011 Budget Control Act.

Democrats believe that by refusing to allow the Republicans to move forward with any of the 12 annual spending bills, they will force the GOP to start budget negotiations to end sequestration once and for all.

Additionally, they are adamantly opposed to adding money for defense and not adding it for domestic programs.

Republicans contend that national security is so important that it cannot wait for Congress to hash out a budget deal.

They intend to use the Democrat’s strategy against them by painting them as anti-military and holding the military hostage in order to get more money for non-defense programs such as the IRS and EPA.

Unfortunately, this game of political brinkmanship is all too familiar. How it will play out is unclear.

Fiscal 2016 Defense Authorization Bill heads to conference. Now that the House and Senate have passed their respective versions of the Fiscal 2016 Defense Authorization Bill, the measures will now go to conference to iron out any differences. Here are some of the major items of contention and AUSA’s position:

Basic Pay Raise

House: Proposes a 2.3% pay basic

raise

Senate: Proposes a 1.3% pay basic

raise

AUSA: Supports House version. We believe the value of military pay has been eroded by two consecutive years of pay caps, and we do not support limiting the raise again in 2016.

Basic Allowance for Housing (BAH) Cuts

House: Does not support

Senate: Bill includes two cuts related to military housing allowances. One requires soldiers to pay more out-of-pocket for housing by holding allowance rates to as much as 5 percent below the actual average cost of housing for their pay grade and location, a move estimated to save the government $3.8 billion over five years.

The second proposal reduces housing allowances for members who are married or living together. Each member of a married couple would no longer receive a housing allowance, but instead receive a single allowance at the with-dependents rate.

AUSA: Supports House bill. If the Senate proposal was adopted, the result would be an average reduction in pay of $1,100 per couple per month.

For unmarried members living together, their housing allowance would be reduced by 25 percent or to the rate for an E-4 without dependents.

Commissary Funding Cut

House: Does not support

Senate: Bill reduces taxpayer funding for commissaries by $322 million.

It authorizes across-the-board increases to reimburse the cost of transporting some U.S.-made items to overseas stores, and authorizes price increases to fund operating costs by removing a requirement for commissary items to be sold at cost.

AUSA: Supports House bill

TRICARE Pharmacy Fee Increases

House: Does not support. Instead the bill proposes that the Defense Department establish a pilot program of preferred retail pharmacy networks to see whether such a program, currently available in Medicare, would reduce government costs.

Senate: Copayments for those using the TRICARE pharmacy system would increase beginning in 2016. Service members retired for medical reasons, spouses of members who die on active duty, and the family members of both of those groups would be exempt from any copay increases.

AUSA: Supports House bill. The nonpartisan Congressional Budget Office says the Senate’s proposal could lead some beneficiaries to reduce their use of medication, and possibly lead to more outpatient visits and hospitalizations.

Besides that, beneficiaries are already doing their part to lower health care costs. Pharmacy co-pays increased in 2014 and 2015.