Military members and families have little to cheer from compromises House and Senate conferees have reached as they finalized details of key personnel provisions in the fiscal 2016 defense authorization bill.
The potential lifetime value of the new retirement plan, which many current members will be allowed to opt into, suffered a significant cut. Conferees agreed to Senate language that lowers maximum government matching of member contributions to the Thrift Savings Plan feature to 4 percent of basic pay rather than 5 percent called for by the Military Compensation and Retirement Reform Commission.
Here’s a rundown of other personnel initiatives that reflect a Pentagon mandate to slow growth in pay and allowances:
Pay raise cap: Conferees allowed for a third consecutive military pay raise cap set a half percentage point below private sector wage growth. The Jan. 1 raise will be 1.3 percent, not 1.8 percent as voted by the House.
President Barack Obama proposed the cap. To help ensure he gets the blame, the bill will not put fingerprints on a smaller raise. It will take effect under an alternative pay raise plan Obama announced in August, making no mention that Congress could have stopped it. The bill does embrace a pay raise freeze on star-rank officers, as endorsed by the Senate.
Dampened BAH: Conferees refashioned a Pentagon push to dampen the Basic Allowance for Housing. BAH rates are to be held down an additional percentage point per year until by 2019 they cover only 95 percent, not the current 99 percent, of stateside rental costs. The lower rates only will apply to members moving to new assignments. This pace of easing BAH purchasing power is slower than sought by Defense officials who wanted to reach the total 5 percent trim next year.
Dual couples’ BAH: Conferees deferred for at least a year action on the Senate’s call to end dual BAH payments to members married to other members, or to members sharing housing. Policy reforms are promised next year. By March, conferees want a study on how to reset BAH so dual-service couples and others have allowances that better match actual housing costs.
Drug co-pay increases: Conferees said they accepted only about 40 percent of the administration’s plan to increase pharmacy co-pays of family members and retirees for prescriptions filled off base or by mail. The size of these co-pay increases will range from $2 to $4 depending on whether drugs are brand name or filled at retail outlets.
Conferees said they need higher drug co-pays in part to pay for some near-term costs associated with creating the new retirement plan. Their report also warns that broader health reforms are overdue, will be pursued in 2016 and will include steps not only to improve quality and access to care but higher fees and cost shares for beneficiaries.
“Blended” retirement plan: The future force will have a different retirement from the 20-year-or-bust plan used for seven decades. The define benefit for serving 20 or more years will be cut 20 percent. But the new “blended” plan will have new features including a Thrift Savings Plan with government matching of contributions up to 4 percent of base pay. That’s atop an automatic annual 1 percent of basic pay government deposit to promote TSP participation.
Conferees opted for a 4 percent match because it saves money and is closer to the maximum TSP match given civilians under by the Federal Employees Retirement System. There was more compromise on when to end annual matching. The commission proposed stopping at 20 years’ service but also backed extending that. The House wanted matching to continue until participants retire. Conferees chose to allow matching through 26 years of service.
A third feature of the plan is a continuation payment at 12 years for careerists who agree to serve at least four more years. The minimum payment will equal 2.5 times of monthly basic pay for active duty members and .5 times monthly active duty pay for Reserve and Guard. Higher amounts will be offered, as needed, to retain the desired career skill mix.
After two years’ service, TSP accounts will be fully vested to roll into civilian employer 401ks, which will give about 83 percent of new entrants some portable retirement benefit. Commissioners also proposed offering a lump sum at retirement, perhaps to buy a house or start a business, to replace the earned annuity stream payable while still working. The lump sum would equal a “discounted present value” for annuities due before full Social Security age. Those who took it still will see full annuities begin in old age and last until death.
The House rejected this as bad deal for newly minted retirees. Conferees compromised to offer smaller lump sum option on retirement, amounts to convert only 50 percent or 25 percent of pre-old-age annuities.
The new retirement plan will take effect Jan. 1, 2018, and be mandatory for new entrants. Current members will be able to opt in only if they have 12 or fewer years’ service by Dec. 31, 2017. That reflects a concern that older members won’t have time to build a TSP nest egg large enough to exceed the new plan’s 20 percent cut to lifetime annuities.
Commissaries in limbo: Conferees rejected DoD’s call to begin to cut $1.3 billion in taxpayer support of commissaries. Instead, they will arm the Defense Commissary Agency with new authorities to test ways to operate stores more efficiently including varied product pricing schemes.
The impossible sounding goal of a new study will be to preserve the value of the shopping benefit yet make commissary and exchange operations “budget neutral,” or able to operate without taxpayer support, by 2019.
Veto: For all the compromises to control personnel costs, President Obama vows to veto the bill over how Republicans use it to skirt the 2011 Budget Control Act. Rather than repeal or renegotiate the debt reduction law to better protect defense accounts, Republicans inserted $38.3 billion more into the defense bill’s Overseas Contingency Operations account, which is exempt from BCA ceilings. They ignored the fact that OCO exists to fund ongoing wars, not to bolster baseline defense spending.
Democrats say it’s an intolerable gimmick and hope a veto will force Republicans to support repeal of BCA or at least some equal easing of BCA cost cutting on domestic programs.
To comment, write Military Update, P.O. Box 231111, Centreville, VA, 20120 or email milupdate@aol.com or twitter: @Military_Update
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