Confidence is rising across the Senate and House armed services committees that 2015 will be the year Congress passes legislation to modernize military compensation, with an alternative to traditional 20-year retirement and perhaps replacing the triple-option Tricare health program.
After decades of rejecting military compensation studies, whether from teams of Pentagon analysts or independent blue ribbon panels, Congress this year appears to be embracing the clever weave of proposals prepared by the Military Compensation and Retirement Modernization Commission.
Sen. Claire McCaskill, D-Missouri, said it was “extraordinary” that nine commissioners endorse their proposals unanimously. So before her colleagues are “off to the races trying to politicize” them, she advised, they ought to “pause a moment and realize that you might just have gotten this right, and this might be exactly what we need to be doing.”
Sen. John McCain, R-Arizona, new chairman of the Senate Armed Services Committee, pledged to keep the well-being of military members and families “foremost in our thoughts as we deliberate the commission recommendations. But upholding our sacred obligation to them does not mean resisting change at every turn. We must not shrink from the opportunity before us to create a modern system of compensation and retirement benefits that would provide greater value and choice.”
The new chairman of the military personnel subcommittee, Sen. Lindsey Graham, R-South Carolina, warned commission critics, “If you think they missed a mark, we will certainly listen to you. But we’re not going to play the demagoguery game because change is afoot and it’s necessary.”
McCain and Graham have told staff they hope to include at least some commission recommendations in the fiscal 2016 defense authorization bill.
As military folks try to grasp the complex commission plans, Congress this week also received a fresh set of proposals from the Obama administration, part of its fiscal 2016 defense budget request, to continue to dampen growth in basic pay and allowances. That budget package asks Congress to consolidate Tricare options, raise Tricare fees sharply on working-age retirees, set a first-ever enrollment fee for new Medicare-eligible retirees using Tricare for Life, and raise pharmacy co-payments.
Obama wants the January 2016 military pay raise capped at 1.3 percent, a point below percent wage growth in the private sector. His budget proposes a string of “limited” pay raises through 2020. It would continue to damp annual adjustments to Basic Allowance for Housing until recipients pay 5 percent of rental and utility costs out of pocket.
The budget also proposes more cuts to annual subsidies for the Defense Commissary Agency, enough so base grocery store patrons see store operating days or hours cut, although not below five days a week.
These budget changes would lower compensation costs by $1.7 billion next year and by $18 billion through 2020. They are separate from commission recommendations. Several, such as consolidating Tricare options, even conflict with commission plans. Commissioners want Tricare replaced with a menu of private sector insurance options and two-part Basic Allowance for Health Care. One part would cover full premiums of a mid-range health insurance plan. A self-directed portion of BAHC, to cover co-pays and deductibles, could be windfall cash for families if they become discerning users of their health insurance benefit.
The most uncertain feature of the commission’s health plan is its vision that private insurance plans would be required to include base medical staff and facilities in its network of providers, and that those care providers would see enough challenging cases to sustain wartime medical skills. To help in that regard, the commission proposes a new joint readiness command to oversee all aspects of readiness, including medical skills at base hospitals.
On retirement, current members could stay under their High-3 plan, which pays an immediate annuity after at least 20 years service, or they could shift to the new plan mandated for new entrances. It would blend a reduced defined benefit, one that pays 40 percent rather than 50 percent of basic pay as an immediate annuity after 20 years, with a Thrift Savings Plan that has government matching of member contributions up to 5 percent of basic pay. After only two years, members would be fully vested in their TSP accounts to take with them if they leave short of 20 years.
The commission proposes using Post-9/11 GI Bill benefits to protect force retention under plan. The education benefit could be transferred to dependents only after 10 years of service and in exchange for serving only two more years. At the 12-year mark, members could get lump sum continuation pay equal to at least two-and-a-half months’ basic pay, if they agree to serve four more years. At 20 years, they would eligible for immediate annuity equal to at least 40 percent of basic pay. Or they could opt for a reduced annuity and some retirement cash in a lump sum, or they could get a bigger lump sum and defer any annuity until they also are eligible for social security. That old age annuity would equal what peers receive who had elected to accept full annuities at retirement.
The commission said computer modeling shows this more complex choice of benefits still would produce healthy retention rates, save billions of dollars a year, and give the vast majority of members who leave service short of 20 years a nest egg equivalent to civilian employer 401(k) plans.
More than 90 percent of current first-termers likely would shift to the new retirement system if given that option, commissioners testified. Some lawmakers on the armed services committees gushed over the plan, calling it bold and thorough. Others were cautious but not critical.
The 70-year-old retirement system and a Tricare program launched in the mid-1990s “were appropriate for their time,” said McCain. “But clearly times have changed.”
Still to be heard from are military associations and veterans groups who have criticized past plans to overhaul compensation as radical and risky, endangering the nation’s defense.