A surprise recommendation from congressional budget negotiators to cap annual cost-of-living adjustments for working-age military retirees is drawing stiff opposition from military associations but may be hard to stop.
And, as more details become available, the plan looks worse for retirees.
Part of the Bipartisan Budget Act of 2013 agreement reached Tuesday would limit COLAs for military retirees under age 62 to 1 percentage point less than the annual rise in consumer prices.
At age 62, there would be a one-time adjustment in annual retired pay to reset the amount to what it would have been at that age without the COLA caps, and then full COLAs would be provided from that point on.
The plan would start in December 2015.
Initially, the Senate Budget Committee announced the COLA reduction would be phased in over three years and that medically retired service members would be exempt. That ends up being untrue, according to congressional aides who have studied the legislative text, who said there is no phase-in or exemptions.
Reducing COLAs would save $6.2 billion over 10 years, according to a Congressional Budget Office analysis released Wednesday, with most of that coming in the last five years. Savings in the initial five years would be slightly more than $1 billion.
The low initial savings in the early years could provide an opening to delay or undo the proposal by finding other savings, although the opportunity to change the current proposal before it comes to a vote seems unlikely.
Michael Hayden, government relations director of the Military Officers Association of America, said military advocacy groups are rallying against the proposal even though they are pleased that budget negotiators have come up with a plan to avoid a government shutdown in January and to reduce, although not completely eliminate, sequestration in 2014 and 2015.
“To us, this seems like an odd time to decide we need to limit COLAs. Why do it now when you have a commission just formed to study retired pay and make recommendations on changes?” Hayden said, referring to the Military Compensation and Retirement Modernization Committee that has just started its work on pay reform.
Part of the commission’s order from Congress is to come up with changes in retired pay that do not harm anyone now in the military, with cuts aimed at people who enter service in the future, Hayden said.
The budget agreement violates the spirit of grandfathering current service members and retirees, he said.
Retirement savings are part of a two-year budget plan designed to avoid a Jan. 15 government shutdown and to reduce — but not completely prevent — sequestration in 2014 federal agency budgets.
The plan was announced by Sen. Patty Murray, D-Wash., and Rep. Paul Ryan, R-Wis.
The agreement allows slightly more than $1 trillion in discretionary federal spending for fiscal 2014, which started Oct. 1. That is about halfway between the House and Senate starting positions on the budget.
The 2014 defense budget could be $520.5 billion under the agreement, with non-defense programs getting $591.8 billion.
Savings, which include the retirement proposals, total $85 billion, with $63 billion allocated to reducing sequestration. About $45 billion of sequestration relief would be applied in 2014, evenly split between defense and non-defense programs, Murray said, leaving just $18 billion for sequestration relief in 2015.
Murray said cutting retirement benefits was a difficult decision but the final proposal is scaled back from an even more severe plan the House brought to the table during negotiations.
Ryan defended the cuts. “We think it is only fair that hardworking taxpayers, who pay for the benefits that our federal employees receive, be treated fairly as well,” he said.