By Rick Maze - Staff writer | Army Times
Posted : Tuesday Jun 28, 2011 13:12:39 EDT
Original article found here:
http://www.armytimes.com/news/2011/06/military-lawmakers-flirt-with-retired-pay-overhaul-062811w/

Two cuts in military retired pay are under discussion as part of negotiations between Congress and the White House over the size of the U.S. national debt, but getting an agreement is proving difficult.
One cut is small, involving how annual cost-of-living adjustments are calculated. It could apply to military and federal civilian retirees, disabled veterans and survivors. The net effect would be annual adjustments that average one-quarter of a percentage point below what they would be under the current formula.
The second retired-pay option involves a complete overhaul of the benefit, replacing the 20-year model, which pays immediate benefits, with a new plan that could provide some retirement benefits for as few as five years of service — with the actual payments not starting until at least age 60 for any service members who do not retire on a full military disability.
As it stands, this proposal would apply only to future troops, not current retirees or anyone already in uniform.
The talks come as the U.S. has run out of borrowing power after reaching its current $14.3 trillion debt limit. The Treasury Department has warned the U.S. will run out of cash reserves to pay bills Aug. 2, which has become the deadline for reaching an agreement.
Little progress
After months of political posturing, negotiations led by Vice President Biden collapsed June 23 with only one tentative agreement: Any increase in the debt ceiling should be matched by an equal cut in spending. The target is $2 trillion in savings, which would allow the debt limit to rise to $16 trillion.
Sen. Mitch McConnell, R-Ky., the Senate Republican leader, met with Republican colleagues June 21 and later said he expects a “large package” of spending cuts that includes short-term reductions in spending by federal agencies over two years, as well as bigger cuts in entitlement programs over 10 years.
He did not offer specifics, but entitlements include government retirement benefits and veterans’ benefits, which is why they are under scrutiny at the same time as more well-known programs such as Social Security, Medicare and Medicaid.
Rep. Eric Cantor, R-Va., the House Republican leader, had been one of the negotiators but left the talks June 23. Before he quit, however, he said any cuts that do happen could be painful.
“It isn’t easy for anybody to … inflict this kind of fiscal discipline, but it has to be done,” he said.
Ultimately, Cantor and Sen. Jon Kyl, R-Ariz., walked away from the talks because Democrats insisted on considering tax hikes to reduce spending cuts, and Biden canceled meetings with the remaining members. That left House Speaker John Boehner, R-Ohio, to work directly with President Obama to either restart negotiations or work out a deal of their own.
Smaller COLAs for retirees
The proposed change to the annual cost-of-living adjustment in retired pay would save $24 billion over 10 years, according to an estimate from the nonpartisan Congressional Budget Office.
The change, which would apply to military and federal civilian retired pay, and veterans disability and survivor benefits, would stop linking annual COLAs for benefits and retired pay to the Consumer Price Index for Urban Wage Earners. It would be linked instead to the Consumer Price Index for All Urban Consumers.
The estimated net result of the change would be annual COLAs averaging 0.25 percentage points less than they otherwise would.
If adopted, the change from CPI-W to CPI-U would apply to all future adjustments, even for current retirees, and could take effect as early as Dec. 1.
The last two years have seen no cost-of-living increase in retired pay because of flat consumer prices. But the Bureau of Labor Statistics, which tracks prices, is reporting a 3.6 percent overall increase in the CPI-U over the past 12 months.
The CPI-W has increased 4.1 percent over the same period, half a percentage point more.
The second change, a complete overhaul of military retired pay and an end to the 20-year system, would pay immediate annuities only to those who receive military medical retirement. For everyone else, retired pay would not begin until age 60 — or possibly older.
Pressure builds for change
The Pentagon has been pushing for this kind of retired pay overhaul since Donald Rumsfeld was in charge, but finding support among the services and key lawmakers for such a fundamental change has been tough.
Although retirement reform is unpopular in military circles, it has popped up on many lists of suggestions for cutting federal spending.
Defense Secretary Robert Gates told the Senate Appropriations Committee on June 15 that two aspects of the military retirement system must be addressed.
“One is: About 70 to 80 percent of our force does not stay in the service long enough to retire, but they leave with nothing,” Gates said. “That doesn’t make any sense. The private sector is well ahead of us in that respect.”
Second, he said, is the 20-year retirement model that encourages people to leave when the military wants some to stay.
“We make it financially silly for them not to retire at 20 years,” Gates said, adding that the military needs to “incentivize them to give us another five years of service.”
The Pentagon has not provided an estimate of how much this concept might save, but the immediate effect would be very small because current members would be exempt. The only immediate impact would be a small change in the services’ monetary contributions to the government’s military retirement trust fund.
The annual contribution to the trust fund is about $70 billion, but only about $20 billion of that is accrued for future payments. The rest pays the cost of benefits for current retirees.