Now that the four congressional committees charged with overseeing military spending have publicly offered their plans for fiscal 2016, troops and military retirees have a clearer picture of the potential impacts on their pay and benefits next year.
They include a pay raise of at least 1.3 percent next year, fewer changes at the commissary than Pentagon officials wanted, and continued relief in health care costs.
There's still a long legislative road ahead before any of the plans become law. The annual defense authorization bill has been stalled in the Senate for most of June, and Democrats in the chamber have threatened to sideline the annual defense appropriations bill over concerns about veto threats issued by the White House.
But once those political fights settle, here's what the measures will mean for troops' wallets:
Pay raise
The White House and Pentagon both have repeatedly backed a 1.3 percent raise for troops in 2016, which would fail to keep pace with anticipated private-sector wage growth for a third consecutive year.
Both the Senate Armed Services and Appropriations committees have backed that same figure, despite lobbying from outside advocates who argue it amounts to a pay cut when inflation is taken into account.
They want a 2.3 percent raise, which both the House Armed Services and Appropriations committees have endorsed. The competing plans set up a major point of contention between the two chambers when the bills are reconciled by a conference committee.
When the two chambers were similarly split over the pay raise last year, the White House won its bid for a lower figure. Pentagon officials have argued that adding even a few tenths of a percentage point equates to hundreds of millions of dollars in compounding costs for years to come.
For an E-4 with three years of service, the difference between a 1.3 percent and 2.3 percent pay bump in 2016 will total about $268 a year. For an O-4 with 12 years, it's about $838.
Housing stipends
Both Senate committees have publicly endorsed Pentagon plans to trim growth in troops' housing stipends, allowing the Basic Allowance for Housing to drop from 99 percent of actual costs this year to 95 percent in coming years, with troops covering the other few points out of pocket.
Military leaders have called that an unfortunate but necessary and bearable sacrifice for military families. Outside advocates have called it additional punishment for troops already struggling to get by.
House lawmakers have opposed the idea in their budget bills, agreeing with those financial burden arguments.
Similar to the pay raise debate, the two chambers were divided over the issue entering conference negotiations in 2014, with the Pentagon's preferred cuts to the housing stipend moving ahead in the final budget deal.
Commissary funding
Pentagon leaders had hoped to shift about $300 million from commissary support to other budget needs next year, but lawmakers appear unwilling to let that happen.
On Thursday, the Senate Appropriations Committee added $322 million in commissary funding back into their fiscal 2016 budget plan, calling the cut potentially harmful to troops and their families who rely on the stores and their lower prices.
The decision puts both House and Senate appropriators on record backing $1.4 billion in funding for commissary operations next year, a total that would avoid forced store closings, reduced operating hours and potential layoffs of staff.
Senators went along with the planned commissary cuts in their initial draft of the annual defense authorization bill, but are considering amendments to restore that money before final passage. A number have also expressed concerns over the Senate Armed Services Committee's proposed legislation to privatize base commissaries, setting up more fights on the issue this year.
New health care fees
Out-of-pocket health care costs for Tricare beneficiaries are likely to remain steady next year, despite Pentagon pleas to raise them.
Defense officials have said they need to raise revenue to offset the $48 billion military health budget, and proposed restructuring Tricare along with adding new fees for retirees. But Congress has resisted making any changes to the program as it studies a number of reform proposals.
The Senate Appropriations Committee on June 11 passed budget plans that would dump those new fees and realignments, matching similar moves in the House.
The Senate Armed Services Committee did include some pharmacy co-payment hikes in its draft of the annual defense authorization bill, leaving the door open for negotiations on the issue through the summer.
Article by Military Times
Showing posts with label Military Pay and benefits. Show all posts
Showing posts with label Military Pay and benefits. Show all posts
Monday, June 22, 2015
Thursday, June 11, 2015
New military retirement system gets Pentagon OK
After months of official silence, the Defense Department on Wednesday sent to Capitol Hill its formal recommendation for transforming military retirement benefits, a move that is likely to clear the way for major changes to become law.
The Pentagon is officially backing a "blended" system that would shrink the size of the current pension by about 20 percent yet supplement that benefit by offering government contributions to individual retirement investment accounts.
The proposed system would provide for the first time a modest retirement benefit for the vast majority of service members who leave the military before reaching 20 years of service to qualify for the traditional pension.
The Defense Department's recommendations are mostly similar to the legislation that is gaining steam on Capitol Hill and comes at a time when lawmakers are hammering out the details of their annual defense policy bill.
"We believe very strongly in this and I hope that this does become law," Laura Junor, the principal deputy undersecretary of defense for personnel and readiness, told Military Times in an interview Wednesday.
The Pentagon on Wednesday sent top lawmakers a six-page "white paper" outlining in detail the military's official position on the retirement reform efforts. Top defense officials will begin meeting with lawmakers on Capitol Hill on Thursday to discuss the details and specific legislative proposals, Junor said.
Read the document: DOD Blended Retirement System Proposal
The Pentagon agrees with Capitol Hill that a future military retirement system should involve individual investment accounts for all troops and provide government contributions to those accounts as part of a Thrift Savings Plan. Money put in a TSP is not available without tax penalties before age 59 and a half.
In effect, the new retirement system would significantly reduce monthly pension income for so-called working-age retirees, but it would restore that money — and potentially more — after veterans reach age 60.
The Defense Department is also urging some modest changes to Capitol Hill's military retirement reform bills. That includes eliminating a feature backed by the Senate that would give service members retiring after 20 years of service the option to forgo traditional monthly pension checks and instead receive a lump-sum immediately upon leaving military service.
That lump-sum option was criticized as being a bad deal for troops and, in concept, resembling pay-day lenders that charge exorbitant interest rates. The military essentially agreed, noting in it's memo to Congress that such a lump-sum payment is a "smart financial decision in very limited circumstances" and "proposed computation methodologies … result in relatively small lump sums, while forgone annuities are significant."
The Pentagon's new recommendation also includes a substantial adjustment to the lump-sum "continuation pay" bonus that is part of the current proposals.
Specifically, the bills pending before Congress would provide a lump-sum cash payment at the 12th year of service contingent upon service members agreeing to stay in uniform for an additional four years. Those bills guarantee troops a cash payment of at least 2.5 times their monthly basic pay, and the services could increase that for troops in high-demand career fields.
The Pentagon's proposal, however, would eliminate that guaranteed minimum payment for troops and seeks more flexibility for the services to determine when and how much continuation pay to offer individual troops.
The Pentagon's "continuation pay" proposal would look similar to the current system of retention bonuses. But the continuation pay would result in more and higher cash payments going to midcareer troops, said Anthony Kurta, the deputy assistant secretary of defense for military personnel policy.
"This is the cost of doing business under a blended retirement system," Kurta said in an interview.
"As soon as you reduce [the fixed-benefit pension] particularly in those middle years, the eight to 16 years, you are going to lose retention because the pull to 20 [years] from that retirement is less," he said.
"That is how the whole system works. We have taken some future compensation and we've moved it into current compensation — the current compensation is that continuation pay. Without that, and without talking about that, the new system doesn't work," he said.
The push to reform military retirement got a boost in January after the Military Compensation and Retirement Modernization Commission completed its two-year study and sent a slate of detailed recommendations to Congress.
For months, the Pentagon avoided taking a position on the proposals and allowed lawmakers to begin crafting legislation. Both the House and the Senate included many elements of the commission's recommendations in their current bills.
Now the Defense Department's recommendations, approved by the top officers from each service, are likely to influence Congress as it works toward a final, single compromise version to send to President Obama.
The military's recommendations include:
• Shrinking the size of the current pension by 20 percent
• Automatically creating TSP accounts for all troops and beginning government contributions equal to 1 percent of basic pay.
• Automatically setting troops' voluntary personal contributions to the TSP at 3 percent of basic pay.
• Allowing troops to opt out of that 3 percent voluntary contribution of basic pay only after completing financial literacy training at their first duty station.
• Allowing the TSP to "vest" and be legally transferred to individual service members after two years of service.
• Beginning the government's dollar-for-dollar match of individual troops' out-of-pocket TSP contributions, up to 5 percent of basic pay, after individual troops complete four years of service.
• Allowing the individual military services to offer "continuation pay" to boost retention in specific career fields for troops with between eight and 16 years of service.
• Allowing government contributions to TPS accounts to continue for the duration of service. (Initial proposals called for stopping those payments after 20 years of service.)
The result would provide government funding up to 6 percent of basic pay for those troops who agree to contribute up to 5 percent of their own pay.
A grandfather clause will give current service members a choice.
The Pentagon recommends a new retirement system taking effect in January 2018 and giving current troops at that time two years to decide whether to opt into the new system and begin accruing money in a TSP or to exercise the grandfather clause and remain under the current system.
Defense officials say the proposed plan does not amount to an overall reduction in the benefit.
"One of the joint chiefs' requirements was that whatever blended plan we came up with, it has to preserve a nearly equivalent lifetime benefit," Junor said.
The value of the government benefit will depend on the extent troops contribute their own out-of-pocket cash.
"If you completely opt out and never get anything more than 1 percent, obviously you will be worse off than the current plan," Junor said.
"But even if you hold tight at 3 percent, you will be about the same [as the current system] over your lifetime," she said. "For those who are financially savvy and contribute 5 percent, they will do a lot better than the current system."
Adopting a new system will probably save some money for taxpayers, but how much remains unclear. The initial projection is that adoption of the Pentagon's proposed system would save less than $1 billion each year initially and about $1.2 billion annually in the long run.
The Defense Department projects it will have to pay out matching TSP contributions equal to about 4 percent of total basic pay, but that will depend on the decisions made by millions of service members.
"The likelihood is that it will save us money, but we can't really forecast with great accuracy how much because of the labor market variable, because of the opt-in rates in the short run," Junor said.
"We are reasonably sure that it is not going to be an additional bill to the department."
Article from Military Times
The Pentagon is officially backing a "blended" system that would shrink the size of the current pension by about 20 percent yet supplement that benefit by offering government contributions to individual retirement investment accounts.
The proposed system would provide for the first time a modest retirement benefit for the vast majority of service members who leave the military before reaching 20 years of service to qualify for the traditional pension.
The Defense Department's recommendations are mostly similar to the legislation that is gaining steam on Capitol Hill and comes at a time when lawmakers are hammering out the details of their annual defense policy bill.
"We believe very strongly in this and I hope that this does become law," Laura Junor, the principal deputy undersecretary of defense for personnel and readiness, told Military Times in an interview Wednesday.
The Pentagon on Wednesday sent top lawmakers a six-page "white paper" outlining in detail the military's official position on the retirement reform efforts. Top defense officials will begin meeting with lawmakers on Capitol Hill on Thursday to discuss the details and specific legislative proposals, Junor said.
Read the document: DOD Blended Retirement System Proposal
The Pentagon agrees with Capitol Hill that a future military retirement system should involve individual investment accounts for all troops and provide government contributions to those accounts as part of a Thrift Savings Plan. Money put in a TSP is not available without tax penalties before age 59 and a half.
In effect, the new retirement system would significantly reduce monthly pension income for so-called working-age retirees, but it would restore that money — and potentially more — after veterans reach age 60.
The Defense Department is also urging some modest changes to Capitol Hill's military retirement reform bills. That includes eliminating a feature backed by the Senate that would give service members retiring after 20 years of service the option to forgo traditional monthly pension checks and instead receive a lump-sum immediately upon leaving military service.
That lump-sum option was criticized as being a bad deal for troops and, in concept, resembling pay-day lenders that charge exorbitant interest rates. The military essentially agreed, noting in it's memo to Congress that such a lump-sum payment is a "smart financial decision in very limited circumstances" and "proposed computation methodologies … result in relatively small lump sums, while forgone annuities are significant."
The Pentagon's new recommendation also includes a substantial adjustment to the lump-sum "continuation pay" bonus that is part of the current proposals.
Specifically, the bills pending before Congress would provide a lump-sum cash payment at the 12th year of service contingent upon service members agreeing to stay in uniform for an additional four years. Those bills guarantee troops a cash payment of at least 2.5 times their monthly basic pay, and the services could increase that for troops in high-demand career fields.
The Pentagon's proposal, however, would eliminate that guaranteed minimum payment for troops and seeks more flexibility for the services to determine when and how much continuation pay to offer individual troops.
The Pentagon's "continuation pay" proposal would look similar to the current system of retention bonuses. But the continuation pay would result in more and higher cash payments going to midcareer troops, said Anthony Kurta, the deputy assistant secretary of defense for military personnel policy.
"This is the cost of doing business under a blended retirement system," Kurta said in an interview.
"As soon as you reduce [the fixed-benefit pension] particularly in those middle years, the eight to 16 years, you are going to lose retention because the pull to 20 [years] from that retirement is less," he said.
"That is how the whole system works. We have taken some future compensation and we've moved it into current compensation — the current compensation is that continuation pay. Without that, and without talking about that, the new system doesn't work," he said.
The push to reform military retirement got a boost in January after the Military Compensation and Retirement Modernization Commission completed its two-year study and sent a slate of detailed recommendations to Congress.
For months, the Pentagon avoided taking a position on the proposals and allowed lawmakers to begin crafting legislation. Both the House and the Senate included many elements of the commission's recommendations in their current bills.
Now the Defense Department's recommendations, approved by the top officers from each service, are likely to influence Congress as it works toward a final, single compromise version to send to President Obama.
The military's recommendations include:
• Shrinking the size of the current pension by 20 percent
• Automatically creating TSP accounts for all troops and beginning government contributions equal to 1 percent of basic pay.
• Automatically setting troops' voluntary personal contributions to the TSP at 3 percent of basic pay.
• Allowing troops to opt out of that 3 percent voluntary contribution of basic pay only after completing financial literacy training at their first duty station.
• Allowing the TSP to "vest" and be legally transferred to individual service members after two years of service.
• Beginning the government's dollar-for-dollar match of individual troops' out-of-pocket TSP contributions, up to 5 percent of basic pay, after individual troops complete four years of service.
• Allowing the individual military services to offer "continuation pay" to boost retention in specific career fields for troops with between eight and 16 years of service.
• Allowing government contributions to TPS accounts to continue for the duration of service. (Initial proposals called for stopping those payments after 20 years of service.)
The result would provide government funding up to 6 percent of basic pay for those troops who agree to contribute up to 5 percent of their own pay.
A grandfather clause will give current service members a choice.
The Pentagon recommends a new retirement system taking effect in January 2018 and giving current troops at that time two years to decide whether to opt into the new system and begin accruing money in a TSP or to exercise the grandfather clause and remain under the current system.
Defense officials say the proposed plan does not amount to an overall reduction in the benefit.
"One of the joint chiefs' requirements was that whatever blended plan we came up with, it has to preserve a nearly equivalent lifetime benefit," Junor said.
The value of the government benefit will depend on the extent troops contribute their own out-of-pocket cash.
"If you completely opt out and never get anything more than 1 percent, obviously you will be worse off than the current plan," Junor said.
"But even if you hold tight at 3 percent, you will be about the same [as the current system] over your lifetime," she said. "For those who are financially savvy and contribute 5 percent, they will do a lot better than the current system."
Adopting a new system will probably save some money for taxpayers, but how much remains unclear. The initial projection is that adoption of the Pentagon's proposed system would save less than $1 billion each year initially and about $1.2 billion annually in the long run.
The Defense Department projects it will have to pay out matching TSP contributions equal to about 4 percent of total basic pay, but that will depend on the decisions made by millions of service members.
"The likelihood is that it will save us money, but we can't really forecast with great accuracy how much because of the labor market variable, because of the opt-in rates in the short run," Junor said.
"We are reasonably sure that it is not going to be an additional bill to the department."
Article from Military Times
Thursday, January 29, 2015
Report: Pay and benefits panel to recommend killing 20-year retirement
From a Stars and Stripes article, published: January 28, 2015.
Troops will see smaller pay raises and housing and health care benefits next year under a defense budget agreement unveiled Tuesday in Congress.
The Military Compensation and Retirement Modernization Commission will release its long-awaited report Thursday, which will propose fundamental changes to military benefits including ending the 20-year retirement, according to the Military Times, citing sources familiar with the report.
The plan calls for Congress to create a hybrid system of smaller defined-benefit pension along with more cash-based benefits and lump-sum payments. A significant portion of retirement benefits would come in the form of government contributions to 401(k)-style investment accounts, those familiar with the report told Military Times.
In addition to the 401(k) for troops serving less than 20 years, the commission will suggest promising a pension to troops who serve a long-term career, but one that would be more modest than what military retirees receive today, a defense official briefed on the plan told the Times.
And, unlike the current system, this pension would not start upon separation from service; instead, those payment checks would begin at a traditional retirement age, such as 60 or older, according to the official.
While retirement changes would affect only future service members, changed to health care could affect those serving now.
According to the Times, the commission will also propose:
• a change in health care benefits for current military families and retirees — Tricare customers could move into the health care coverage provided to federal employees;
• a new health care allowance for troops designed to cover some expenses, such as doctor-visit co-pays and eyeglasses.
• a new four-star medical command to oversee military health care, a significant break from the tradition of each service operating its own health care system.
• keeping current commissary benefits, to include continuing to sell products at cost plus 5 percent surcharge. A separate DOD budget proposal is expected to call for increasing prices to operating costs.
• consolidating the commissary and exchange systems. Initially, they would keep their separate branding — Navy Exchange, Defense Commissary Agency, etc. — but eventually would be combined.
• building more child development centers on military bases. The proposal also calls for automatically enrolling each service member in the Thrift Savings Plan, an investment account that accrues savings. Individual troops would be responsible for managing their accounts, and the money is typically not available for withdrawal without penalty until age 59.5.
The government contributions likely would be a percentage of basic pay and could vary depending on years of service and/or deployment status. Full ownership of the TSP account would come only after troops have completed several years of service.
By allowing many troops to keep their TSP government contributions after separation, the new proposal would give limited retirement benefits to the vast majority who leave the military before hitting the traditional retirement milestone of 20 years of service, most of them enlisted members who do four, six or eight years, then leave.
It would be a sea change from a system that now offers retirement benefits to about only 17 percent of the force — many of them officers — who serve 20 years.
Any change to military retirement would require Congress to pass changes in law. Many experts say Congress is unlikely to summon the political will to take action on the controversial issue of military compensation. Nevertheless, the report is likely to trigger a new battle in that arena. Also unknown is whether the commission’s proposals will get fast-tracked to an up-or-down vote, or move through Congress’ normal process.
Troops will see smaller pay raises and housing and health care benefits next year under a defense budget agreement unveiled Tuesday in Congress.
The Military Compensation and Retirement Modernization Commission will release its long-awaited report Thursday, which will propose fundamental changes to military benefits including ending the 20-year retirement, according to the Military Times, citing sources familiar with the report.
The plan calls for Congress to create a hybrid system of smaller defined-benefit pension along with more cash-based benefits and lump-sum payments. A significant portion of retirement benefits would come in the form of government contributions to 401(k)-style investment accounts, those familiar with the report told Military Times.
In addition to the 401(k) for troops serving less than 20 years, the commission will suggest promising a pension to troops who serve a long-term career, but one that would be more modest than what military retirees receive today, a defense official briefed on the plan told the Times.
And, unlike the current system, this pension would not start upon separation from service; instead, those payment checks would begin at a traditional retirement age, such as 60 or older, according to the official.
While retirement changes would affect only future service members, changed to health care could affect those serving now.
According to the Times, the commission will also propose:
• a change in health care benefits for current military families and retirees — Tricare customers could move into the health care coverage provided to federal employees;
• a new health care allowance for troops designed to cover some expenses, such as doctor-visit co-pays and eyeglasses.
• a new four-star medical command to oversee military health care, a significant break from the tradition of each service operating its own health care system.
• keeping current commissary benefits, to include continuing to sell products at cost plus 5 percent surcharge. A separate DOD budget proposal is expected to call for increasing prices to operating costs.
• consolidating the commissary and exchange systems. Initially, they would keep their separate branding — Navy Exchange, Defense Commissary Agency, etc. — but eventually would be combined.
• building more child development centers on military bases. The proposal also calls for automatically enrolling each service member in the Thrift Savings Plan, an investment account that accrues savings. Individual troops would be responsible for managing their accounts, and the money is typically not available for withdrawal without penalty until age 59.5.
The government contributions likely would be a percentage of basic pay and could vary depending on years of service and/or deployment status. Full ownership of the TSP account would come only after troops have completed several years of service.
By allowing many troops to keep their TSP government contributions after separation, the new proposal would give limited retirement benefits to the vast majority who leave the military before hitting the traditional retirement milestone of 20 years of service, most of them enlisted members who do four, six or eight years, then leave.
It would be a sea change from a system that now offers retirement benefits to about only 17 percent of the force — many of them officers — who serve 20 years.
Any change to military retirement would require Congress to pass changes in law. Many experts say Congress is unlikely to summon the political will to take action on the controversial issue of military compensation. Nevertheless, the report is likely to trigger a new battle in that arena. Also unknown is whether the commission’s proposals will get fast-tracked to an up-or-down vote, or move through Congress’ normal process.
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