AMS Special Report: Military Pay and Benefits in the Crosshairs In the past few weeks the most drastic and far-reaching changes in military and retiree pay and benefits have been proposed in Washington, D.C. This Special Report is devoted to explaining what those proposed changes are and how they could affect all military personnel. Not all of the changes will affect everyone, but everyone will be affected by at least some of them if Congress enacts them into law. However, if history is any guide, any changes that are made will be followed by more in the future because military personnel have become the group on whose backs Washington politicians and bureaucrats want to try and balance the federal budget. We think this is outrageous. As you will see, some of the proposed changes are not necessarily bad. We will discuss that. But whether or not it was intentional, some of the proposals are going to divide military people -- active duty against retirees -- against reserve component personnel. At AMS, we are going to try and find those things we can all support -- or oppose, while respecting the opinions of others when they differ. Obviously, this is only the beginning of this battle. It is likely to last all year long. And if Congress cannot ultimately reach any kind of agreement on the proposals and nothing new passes this year, the proposals will be put on the shelf next year because of the presidential and congressional elections. In other words, this is the critical year if Congress is going to overhaul the military personnel benefits system. AMS intends to be in the thick of the fight and we ll do our best to represent you and protect those benefits you ve earned and that you depend on. Military Compensation and Retirement Modernization Commission (MCRMC) The first shot in the battle over military benefits was fired by the MCRMC. This is a commission that was established by Congress in the FY2013 National Defense Authorization Act. The legislation said the President should determine the purpose and guidelines for the commission. Subsequently, President Obama set forth the following: In conducting the Commission s review and in developing recommendations, you should ensure that the Commission examines all areas outlined in section 671(b)(1) and considers the full breadth of the military compensation and retirement systems, to include healthcare programs, programs supporting military families, as well as programs of the Federal Government that may influence decisions of current and future members of the military to join and remain in the service of our Nation. The Commission s review should also consider and examine: our Nation s ability to sustain an All-Volunteer Force; the retention of our most experienced and qualified service members and the alignment of compensation and management to achieve this end; our current promotion system and associated force shaping tools; and our responsibilities to the American taxpayers. The review should provide recommendations for sustaining the longterm viability of the All-Volunteer Force in a fiscally responsible manner. The Commission s recommendations and analysis for reforming and modernizing the military s compensation and retirement systems should be based upon the priorities outlined in sections 671(b)(2) and 674, and upon the longstanding principles of military compensation developed by the 5th
Quadrennial Review of Military Compensation, as outlined below. The Commission s recommendations for change must grandfather any currently serving military members and current retirees in the current military retirement systems, but may allow currently serving members and current retirees the choice to change to your proposed retirement system. The MCRMC s final report gave 15 recommendations on everything from pay and benefits to health care to quality of life programs. They affect active duty, reserve component personnel, retirees, and survivors. If enacted, the Commission says it would save the government $12 billion a year, although they say saving the government money was not the driving factor in developing their recommendations. The report is 255 pages long and is difficult to summarize in the brief space we have here. In addition, the recommendations are comprehensive and include many assumptions that require extensive study. The Department of Defense has been given 60 days to examine the report and come back with its own findings and conclusions so we are not prepared to give a final verdict on all of the recommendations at this point. However, here are the basic proposals in brief. Health Care Replace the triple-option TRICARE program for military families and working-age retirees with a selection of commercial health insurance plans. That menu of health insurance offerings to the military would be similar to the Federal Employees Health Benefits Insurance Program (FEHBP) for civilians. Active duty families would receive a new two-part Basic Allowance for Health Care (BAHC) to cover most of their new health insurance costs. Participating insurance plans would have to include military treatment facilities in their provider networks. Patients and plans would be enticed to use on-base care with offers of reduced copays and fee reimbursements, particularly for complex medical cases that keep wartime skills sharp. The commission would leave unchanged TRICARE For Life for Medicare-eligible retirees. Working-age military retirees and families would initially have to pay five percent of health plan premiums. That cost share would grow by one percentage point a year over 15 years so that retirees under age 65 eventually pay 20 percent of health insurance costs. The costs would stop when eligible for Medicare and TRICARE For Life. Retirement Regarding retirement, current force members could stay under their High-3 plan. But a blended plan that lowers annuities for careerists but offers some retirement savings to the 83 percent of service members who leave short of 20 years would be instituted. This would be for all new personnel coming into the military but currently serving could opt into the program if they choose. The new retirement plan for new entrants and for any current members drawn to its features would still provide an immediate although reduced annuity after 20 or more years of service. Among its new features would be a Thrift Savings Plan (TSP) with government matching of member contributions up to five percent of monthly basic pay. This would be
portable like 401k plans in the private sector. TSP would vest after only two years and members could roll it into civilian employer 401ks on leaving service. After 12 years of service, members would receive a lump-sum continuation payment, equal to at least two-and-a-half months of basic pay -- more if they have a critical skill. To take the cash, members would have to agree to serve four more years. After 20 years of service they could draw an immediate annuity based on 2 percent (not the current 2.5 percent) of average basic pay for each year served -- or accept a lump sum amount and a smaller annuity -- or accept a full cash out and forego any military annuity until they age into social security. At that point, military retired pay would start and equal the retired pay of their peers who elected to draw full annuities since time of retirement. Family Support Other recommendations would strengthen support of families with more childcare and improved access to services for special needs children. The commission doesn t endorse ending the offset of Survivor Benefit Plan payments for thousands of widows who also receive VA Dependency and Indemnity Compensation (DIC). But it would give retirees the option of paying higher SBP premiums to ensure that their surviving spouses, if deemed eligible for DIC, would also receive full SPB. Proposals regarding the Post-9/11 GI Bill would impact many of the more than 423,000 members who have elected to transfer GI Bill benefits to family members in return for serving longer. The transferred benefit now includes a housing stipend equal to monthly housing allowance locally for a mid-grade enlisted member. The commission says that stipend shouldn t be paid to family member students after June 2017 even if it was part of the original deal. Finally, the report recommends combining the exchanges and commissaries of all the services. However, we believe that if this happened the savings currently realized at the commissaries would all but disappear because prices would have to rise. Commissaries on posts and bases would continue to exist but the benefit in shopping there would be gone. Congressional Action Congress has already held hearings on the Commission s recommendations and more are sure to continue in the coming weeks and months. It is apparent from what has happened so far that many, probably most, members of Congress have little understanding of the military pay and benefits system and the recommendations of the MCRMC are so complicated that they are having trouble understanding them. In 1986 military pensions were reformed far less dramatically than this. That pension cut had such a dramatic effect on retention, the Joint Chiefs pushed to repeal it just a few years later, which Congress did. No matter where you stand on the issue of cutting the Defense budget, it should be clear to everyone that career veterans should be the last ones to take it on the chin. There are plenty of places where there is a great deal of money to cut, especially in procurement, weapons systems and the excess number of bases we have around the world. And some people question whether turning the military pension system over to Wall Street is the best message to send to troops deployed in hostile regions.
Perhaps we should recommend that members of Congress consider reforming congressional pensions first. Here s what they get: The pension amount is determined by a formula that takes into account the years served and the average pay for the top three years in terms of payment. In 2002, the average pension payment ranged from $41,000 to $55,000. For example, a member of Congress who worked for 22 years and had a top three-year average salary of $153,900 would be eligible for a pension payment of $84,645 per year. That is more than an 0-6 makes in retirement. Let s see if Congress is willing to cut their retirement pay and health care before they start taking it away from military retirees. Finally, we believe that anyone who thinks "grandfathering" in all current service members from the changes is a good idea should think twice. By grandfathering the conversion to a 401k retirement system they get people to accept the change. Some people think, "It won t affect my pension, so why should I care?" Then, after a few years have passed, they pit the un-grandfathered against the grandfathered in order to demand more cuts from those who were grandfathered. The un-grandfathered say "hey... why does that guy get to live it up when I don't?" That s something to think about. The FY 2016 DoD Budget Proposal To put it briefly and to the point, the President s DoD budget for FY2016 once again calls for a military pay cap, an increase in out-of-pocket housing costs, and higher TRICARE fees. It is very similar to the proposals the Administration made last year. The budget proposes limited pay raises for troops over the next five years, even though Congress sets the rate each year as part of the budget process. The spending plan calls for a raise of 1.3 percent in fiscal 2016 and 2017, 1.5 percent in fiscal 2018 and 2019, and 1.8 percent in 2020. It would slow the growth of basic allowances for housing (BAH) by another 4 percent over the next two to three years, in addition to the 1 percent approved for this year. Therefore, service members would eventually pay an average of 5 percent of the costs. The budget would again seek to decrease commissary subsidies, by $100 million to $1.2 billion, in part by reducing the number of days and hours the stores operate, though most are expected to remain open five or more days a week. Eventually this would result in a savings loss of 66%. Establish a means-tested TRICARE For Life enrollment fee for retirees over 65. Consolidate TRICARE Prime, Standard, and Extra programs into one program. Working retirees would have to pay higher enrollment fees and co-pays and would have to pay to use Military Treatment Facilities. Once again increase pharmacy co-pays.
In fact, the proposed consolidation doesn't improve the health care benefit -- it merely shifts more cost onto beneficiaries. Retirees will pay more for care without improving access, quality, or wait times. VA Budget Once again, the Department of Veterans Affairs (VA) fared well in the administration s proposed FY 2016 budget. At a time when the Defense Department is struggling with further cuts when the full force of sequestration returns, the administration is proposing an increase in the budget for VA. This year s budget includes $73 billion in discretionary spending, mostly for health care programs, and $93 billion for disability pay, survivors compensation, and educational benefits programs. Other budget highlights include: $104 billion for the first-ever advanced appropriations for three benefit programs (compensation and pensions, readjustment benefits, and insurance and indemnities); A $3 billion funding increase for medical care appropriations to support access, homelessness, Hepatitis C treatment, and increases in caregiver services; Over $7 billion in mental health services and $1 billion for telehealth, increasing $349 million and $126 million respectfully from 2015; An over 8 percent increase for women veterans health care needs ($466 million) over last year.