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Here’s Why the Proposed Military Retiree Benefit Cuts Are No Big Deal

Here are six reasons why it is hard to make an argument that the U.S. government is not acting in good faith for the men and women in uniform. By Lawrence Korb and Katherine Blakeley

Not surprisingly, the provision in the Ryan-Murray Budget agreement that reduces the annual cost of living adjustment for military retirees by 1 percent is provoking outrage among some parts of the military lobby. According to the Military Officers Association of America, or MOAA, this provision is a substantial cut, reducing working-age retiree pension by about 20 percent, and breaks faith with our men and women in uniform. However, the claims of MOAA and others are misleading.

First, the provision does not break faith with the vast majority of men and women in uniform, since most of them will not retire. According to DOD’s Office of the Actuary, responsible for overseeing retiree pensions, only 15 to 17 percent of the enlisted soldiers, sailors, marines and airmen who served in the conflicts in Iraq and Afghanistan will serve long enough to retire. The current retirement system provides no retirement benefits at all to servicemembers who serve less than 20 years. If MOAA, which used to be called the Retired Officers’ Association, really cared about the overwhelming majority of the enlisted men and women who serve in the military, they would advocate scrapping the current outmoded retirement system in favor of a 401(k) type system for all who serve.

Second, the reduction applies only to working-age retirees – that is, military retirees who have not yet reached the age of 62. Since the vast majority of people who retire from the military in their 40s and 50s take other jobs, often using skills they have gained or developed in the military, their military retirement pay is not their sole source of income. Moreover, when working-age retirees reach the age of 62, their retired pay would be readjusted back to the full amount they would have gotten if they had received the full COLA each year. After 62, retirees would receive the full COLA adjustments. In other words, the COLA reduction is temporary, affecting only those who retire from the military but are still young enough to work.

(Read more: Military Compensation Reform Is Sacred No More)

Third, the reduction does not affect those who suffered physical and mental wounds during their service. Disability compensation is paid through the Veterans’ Administration and will not be affected by this provision.

Fourth, the alleged 20 percent lifetime reduction to working-age retiree pay applies only to those who separate at exactly the 20 year mark. Many men and women serve past the 20 year mark, putting them correspondingly closer to age 62, when their retirement pay is adjusted back up to the full amount. Consequently, the impact on them will be much less than the 20 percent number touted by MOAA. 

Fifth, and most importantly, MOAA ignores all of the other benefits that have been given to military retirees over the past decade that have enhanced the value of their retirements. These generous benefits more than make up for this potential cut to working-age retiree pay. For example:

  • Over the past decade, Congress has frequent adjusted base pay above the cost of living, increasing it  half a  percent above the cost of living in 2004, 2005, 2006, 2008, 2009, 2010. Thus,  retirees will have correspondingly higher retired pay, on which the annual cost of living adjustment will be applied. 
  • Thousands of those who have retired over the last seven years have received several thousand dollars more a year in retired pay than they were promised. Servicemembers who enlisted after July 1, 1986, were supposed to receive 40 percent of their base pay at 20 years of service under the “Redux” retirement system, with COLA adjustments 1 percent below inflation. By contrast, in the previous “High-3” system, servicemembers received 50 percent of base pay and COLA adjustments equal to inflation. However, in 1999, before any servicemembers retired under the new “Redux” system, Congress made the “Redux” plan optional. According to DOD’s Office of the Actuary, most retirees who would have retired under the “Redux” plan have picked the more generous “High-3” option. 
  • Retirees under age 65 also receive low-cost access to health insurance via TRICARE. Until 2012, Congress had refused to raise TRICARE premiums to reflect the growth in health care costs. As DOD put it in their FY2013 budget request, asking to increase retiree TRICARE premiums, today, a working-age retiree’s family of three pays for only about 11 percent of their medical costs, compared to 27 percent when TRICARE was established in 1996, a savings of over $2,000 per year. Currently, TRICARE prime enrollment fees are only $273.84 per year for an individual, or $547.68 for a family, far cheaper than comparable private insurance plans. 
  • Moreover, Medicare-eligible military retirees are covered by TRICARE for Life with no additional costs, deductibles or fees. Established in 2001, the TRICARE for Life program functions like a “Medigap” plan, paying for all medical expenses that are covered by TRICARE but not Medicare Part B or D. 

Finally, military retirees who were receiving disability compensation from the VA used to have their military retiree pay “off-set” by the amount of their VA disability compensation. In 2004, Congress changed the law to allow retirees to receive VA disability compensation on top of their retired pay. 

Considering all of these factors, it is hard to make an argument that the U.S. government is not acting in good faith for the men and women in uniform. Even with the proposed slight adjustment in annual cost of living adjustments, military retirees are compensated generously.

Lawrence J. Korb is senior fellow at the Center for American Progress and was the Assistant Secretary of Defense for Manpower, Reserve Affairs, Installations and Logistics from 1981-1985. He has also held senior leadership positions at the Council on Foreign Relations, the American Enterprise Institute and Brookings. Katherine Blakeley is a Research Assistant at the Center.