COLA Cut Talking Points
The recently passed Bipartisan Budget Act of 2013 includes a provision that will reduce working age retiree annual cost-of-living adjustment by one percent until they reach the age of 62.
Service members who retire at the 20 year point will feel the full negative financial effects of the provision by reducing their retired pay by nearly 20 percent by the time they reach age 62.
At age 62, it includes a “catch-up” clause that recalculates the retiree’s annual pay base for the following year but the financial loss of the years between retirement and age 62 are lost.
Financial Impact: an E-7 retiring this year with 20 years of service would see an average loss of over $3,700 per year by the time he/she reaches age 62 – overall impact: $83,000 loss by age 62.
Disability Retirees: Provision also impacts disability retiree pay. There is no exemption for Chapter 61 retirement pay but the provision does not impact VA compensation. Concurrent Receipt is also unaffected.
Survivors: Survivors or retirees under age 62 would have a reduced annuity; however, when to retiree would have reached age 62, the survivor annuity will be recalculated as if the retiree’s pay had the full COLA.
Affected Population: Working age retirees under age 62 will be affected starting December 2015. Military members now contemplating a career in uniform will also be impacted once they retire – the provision does not grandfather the current retirees nor the current force.
The provision flies in the face of the principles that guide the ongoing congressionally-mandated review of military compensation and retirement.
Congress wisely removed a “fast-track” rule so that the appropriate committees would have adequate time to assess any impacts that any recommended changes to the retirement system would have on retention and readiness.
In addition, the guiding principles to the Military Compensation and Retirement Modernization Commission (MCRMC) include a grandfather clause to protect current retirees and service members from any changes to their retirement.
This provision disregards the grandfather clause and will impact current retirees under age 62 as well as any currently serving member contemplating a career in uniform.
The last major change to military retirement, REDUX in 1986, grandfathered the existing force. Fifteen years later, REDUX was repealed due to the harmful impact to retention and readiness.
The Senate Armed Services Committee leadership has vowed to relook this provision in January when the House and Senate return.
Action: Please work with the Armed Services Committee in January to find a bipartisan solution to repeal Sec. 403 of the Bipartisan Budget Act and replace it with alternative savings.