Budget Deal Hits Military Retirees with Pension Cuts, Federal Retirees Untouched

Cost of living adjustments will decrease for retired military personnel, not for civilian retirees

Rep. Paul Ryan (R., Wisc.) and Sen. Patty Murray (D., Wash.)
Rep. Paul Ryan (R., Wisc.) and Sen. Patty Murray (D., Wash.) / AP
December 11, 2013

Military retirees will see a decrease in their pension plans if the bipartisan budget agreement is adopted, while civilian federal employees will be exempt.

Under the budget agreement crafted by House Budget Committee Chairman Paul Ryan (R., Wisc.) and Senate Budget Committee Chairman Patty Murray (D., Wash.), military retirees younger than 62 will receive 1 percentage point less in their annual cost-of-living adjustment.

New federal employees who are hired after Jan. 1, 2014 will also be required to pay 1.3 percent of their pay more into their pension plans. However, federal retirees will continue to receive their generous pension benefits and current employees will not be required to pay more.

Civilian government workers will be grandfathered in at their current contribution rate of 0.8 percent.

Ryan contends lowering the cost-of-living adjustment (COLA) for military retirees under 62 will decrease the deficit by $7 billion over 10 years.

Military personnel that enlisted after 1980 currently have the choice between two retirement plans. The majority of the military prefers the "High Three" plan, which offers a full COLA equal to inflation as measured by the Consumer Price Index (CPI).

An alternative plan, the "Redux," provides a lump sum of $30,000 upon retirement, but the cost-of-living adjustment is equal to inflation minus 1 percent.

According to the Congressional Research Service (CRS) as of 2009, 244,476 military service men and women chose the High Three plan, while only 14,605 opted for the Redux.

If the budget agreement is adopted, all military retirees will be forced into a plan similar to the Redux plan, but they will not receive a lump sum upon retirement.

"The military retirement system is a non-contributory, defined benefit system that has historically been viewed as a significant incentive in retaining a career military force," the CRS said.

"The monthly retirement annuity is adjusted annually by a Cost-of-Living Adjustment (COLA) to ensure that the annuity is protected from the adverse consequences of inflation," they added.

Only 15 percent of enlisted personnel will ultimately be eligible for retirement, according to the CRS. Payments to military retirees and survivor benefits totaled roughly $53 billion in fiscal year 2011.

"While some posit that the military retirement system is overly generous, others argue that it is fair, especially given that repetitive tours of duty in Afghanistan and other overseas areas remain a likely prospect for today’s active duty and reserve personnel," the CRS said.

"As a result, they believe that now is not the time to make changes based on cost savings," the 2012 report said.

The budget deal would increase spending levels to $1.012 trillion, above the Budget Control Act cap of $967 billion for fiscal year 2014, and reverses $63 billion in automatic sequester cuts. The House will vote Thursday on the two-year plan.

One of the benefits of the deal, Ryan says, is that it spares the Pentagon from the sequester cuts next year, locking defense discretionary spending at $520.5 billion in fiscal year 2014.

"We have members who are really worried about the cuts to the Defense Department," Ryan said Tuesday evening on the Mark Levin Show. "The rest of the sequester hits nothing but the military starting in January, and this prevents that from happening and cuts spending in other areas."