21 May 2015 Legislative News Update
weekly electronic newsletter, and is published
every Thursday when Congress is in session.
WHAT’S THE RUSH? Lawmakers on the Senate Armed Services Committee approved the fiscal 2016 defense authorization bill last week. Included in the measure is a proposal that would fundamentally change the current military retirement system.
The proposed retirement system overhaul reflects the recommendations made earlier this year by the Military Compensation and Retirement Modernization Commission (MCRMC) and largely mirrors language included in the defense authorization bill passed last week by the House of Representatives.
Instead of the current 20-year, cliff-vested retirement benefit, servicemembers that serve at least 20 years would get government contributions to a 401(k) in exchange for a reduced retirement pension. Troops who stay less than 20 years will have a portable benefit when leaving the service.
The Senate’s plan would continue the defined benefit for those who complete at least 20 years of service at a multiplier rate of 2.0 times years of service and would authorize government-matching Thrift Savings Plan (TSP) contributions for members of the uniformed services that will vest at the beginning of 3 years of service (2 years, 1 day) at a government matching rate of up to 5 percent.
This new modernized retirement system would apply to members first joining a uniformed service on or after January 1, 2018; current members are grandfathered but may choose to be covered by the new plan. The House bill’s modifications would take effect on or after Oct. 1, 2017.
The bill takes the changes even further than the House bill. The Senate’s version “Authorizes the Secretary concerned to allow the voluntary election of lump sum payments of retired pay for those serving 20 or more years of service. Members who elect to take the lump sum may choose to take 100 percent or 50 percent of the discounted present value of their defined retirement benefit that would be due to them prior to becoming eligible for Social Security. Unlike the House proposal, the Senate bill stops government contributions to 401(k) accounts after 20 years of service.
So what’s the problem? AUSA wanted to wait until the Pentagon is finished with their in-depth review of the MCRMC’s proposal. We are not convinced by the conclusions reached by the MCRMC and remain concerned that converting to a 401(k) style retirement would hurt retention down the line. Determining the actual value of future benefits is next to impossible. The MCRMC’s analysis is based on assumptions for unknowable factors like future inflation, military pay raises, stock market returns and individual investment decisions.
THE REST OF THE STORY. The Senate Armed Services Committee also voted to:
§ Provide servicemembers with a 1.3 percent pay raise instead of the 2.3 percent mandated by law.
§ Authorize fiscal year 2016 active-duty end strengths for the Army of 475,000.
§ Revise the method by which the monthly amount of the basic allowance for housing is determined by authorizing the Secretary of Defense to reduce the monthly amount by up to 5 percent of the national average for housing for a given pay grade and dependency status.
§ Extend for 1 year authority to temporarily increase the rate of basic allowance for housing in areas impacted by natural disasters or experiencing a sudden influx of personnel.
§ Repeal the inapplicability of the modification of basic allowance for housing to benefits under the laws administered by the Secretary of Veterans Affairs.
§ Increase from 90 to 180 the number of days of active duty required to be performed by reserve component members for duty to be considered Federal Service for purposes of unemployment compensation for ex-servicemembers.
§ Terminate the program of educational assistance for reserve component members supporting contingency operations and other operations as recommended by the Military Compensation and Retirement Modernization Commission. This program is duplicative with the Post-9/11 GI Bill, which provides a more robust benefit for servicemembers.
§ Terminate the entitlement to unemployment insurance for those receiving Post-9/11 educational assistance as recommended by the Military Compensation and Retirement Modernization Commission.
§ Request a report on a plan to privatize the Defense Commissary System, in whole or in part, and directs a GAO assessment of potential costs and benefits from privatization. The bill also requires a pilot program on privatization of commissaries.
Neither the House-passed bill nor the Senate Armed Services Committee adopted the Pentagon’s proposals to establish enrollment fees for TRICARE for Life beneficiaries or consolidate the TRICARE program. The Senate bill did include a provision that would raise cost-shares for the TRICARE pharmacy benefits program.
What’s next: The Senate bill will go to the floor for a full vote. Sources say the vote could come as early as June.
NO END TO SEQUESTRATION. The one thing neither the House nor Senate bills did is end sequestration. Instead, House and Senate leaders added money to the Overseas Contingency Operations (OCO) fund as a workaround. The added funds, authorized for operations and maintenance within the DoD’s base budget, were used to sidestep spending caps mandated by the Budget Control Act (BCA) of 2011.
As a result of this maneuver, the White House issued a veto threat and many Democrats voiced their opposition. In fact, both of the top Democrats on the House and Senate Armed Services Committees voted no on the measures.
Sen. Jack Reed, D-R.I., said, "If we don't effectively find a way out of this BCA dilemma this year, then what we've done is institutionalize OCO as a way to fund the defense bill every year. And I think it will grow and grow and grow."
Rep. Adam Smith, D-Wash., "Both Democrats and Republicans agree that the  Budget Control Act caps are extremely damaging and as long as Congress fails to enact a solution, a variety of key national priorities will continue to suffer. I understand that finding a compromise to remove the caps has been elusive, but that does not justify the use of gimmicks to protect one part of the budget, and shortchange other portions that are vitally important to the future of our country.”