House Trims Pay Raises for Troops, Retirees

Stacks of coins and pile of bills.

The U.S. House of Representatives passed legislation Thursday that would reduce pay raises for troops and retirement benefits for veterans.

A day before adjourning for holiday recess, the Republican-controlled chamber voted 332-94 to approve the Bipartisan Budget Act. Under the bill, federal agencies such as the Defense Department would avoid about $62 billion in automatic budget cuts, known as sequestration, over two years.

It would be paid for in part by scaling back pensions for working-age military retirees.

"This bill is a firm step in the right direction," Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee, said on the floor before the vote. He crafted the budget deal with his Senate counterpart, Sen. Patty Murray, D-Wash.

"It's not perfect," he said. "It's a start."

Separately, the House also voted 350–69 in favor of the 2014 National Defense Authorization Act, which outlines military policy goals and spending targets for the fiscal year that began Oct. 1. The legislation would effectively set troops' pay raises at 1 percent next year, fund weapons programs such as the F-35 aircraft and adopt numerous provisions to combat military sexual assault.

The Democratic-led Senate is expected to vote on both measures next week.

The Pentagon faces about $1 trillion in spending cuts over the next decade as part of 2011 deficit-reduction legislation known as the Budget Control Act. That includes almost $500 billion in reductions already planned and another $500 billion in automatic cuts.

The Ryan-Murray bill would undo some of those reductions.

Of the $62 billion in sequestration relief in the pact, $44 billion would be applied in 2014 and another $18 billion in 2015, according to a cost estimate from the Congressional Budget Office. That means the Pentagon would receive an additional $22 billion in 2014 and another $9 billion the following year, according to the office.

Marion Blakey, chief executive officer of the Aerospace Industries Association, an Arlington, Va.-based trade group representing defense and aerospace companies, welcomed the financial predictability the agreement gave the industry.

"Not only will this provide some sequestration relief, allowing at least some essential programs to go forward, it will also allow the appropriations process to proceed and develop a real budget for the remainder of this fiscal year and next," she said in a statement.

The added federal spending would be offset by raising revenue and cutting costs in other areas of the budget, from increasing security fees for commercial airline passengers to reducing contributions to civilian and military pensions.

Military retirees between the ages of 40 and 62 would receive an annual cost-of-living increase to their retirement benefits at 1 percent less than the rise in inflation. The reduction would be phased in over three years and take full effect in 2016.

The pension change could decrease veterans' retirement benefits by nearly 20 percent in some years, according to Michael Hayden, director of government relations at the Military Officers Association of America, an Alexandria, Va.-based nonprofit representing some 380,000 current and former officers.

For example, an E-7 who retires at age 40 would receive about $35,500 by age 62, down from about $44,000; while an O-5 who retires at age 42 would get about $63,900 by age 62, down from about $77,600, he said.

MOAA has vowed to fight the provision and already started a letter-writing campaign to lawmakers, Hayden said.

"This was a backroom deal that was made by a committee that doesn't have jurisdiction over armed services," he said. "It not only caught us by surprise, I think it caught members of Congress by surprise, especially members of the armed services committees."

Others said the overall effect on military retirees won't be that significant.

Retirees would see a roughly 10 percent decrease in retirement pay by age 61 -- and the cumulative effect of the cost-of-living adjustment would decline even more over time, according to Kevin Brancato, a defense analyst at Bloomberg Government in Washington, D.C.

"You're talking about a small decrease in the total package for a retiree's lifetime," he said in a telephone interview. "It's between four and five percent."

Meanwhile, the defense policy bill would reduce troops' pay raise in 2014 to 1 percent from 1.7 percent this year. The change means the average enlisted member would receive a monthly pay increase of $26 instead of $47, according to Pentagon budget documents.

The bill doesn't specify a pay raise of 1 percent, though it gives President Barack Obama the authority to set it at that level, which he has already vowed to do.

The legislation supports existing law, which stipulates a 1.8 percent military pay raise to keep pace with civilian wages, but -- more importantly-- gives the president flexibility to make exceptions by executive order, according to a press release from McKeon's committee.

"President Obama has notified Congress that he intends to use his authority to set the 2014 military pay increase at 1 percent," the release states. "The NDAA neither affirms [nor] rejects the President’s decision."

The percentage is in line with what the Obama administration requested and the Senate Armed Services Committee already approved. While the House previously passed a 1.8 percent military pay raise for next year, it agreed to limit the increase as part of a legislative compromise.

The lower raise for military personnel was "a tough decision" for Pentagon leaders, but it allowed them to not have to thin the ranks "by thousands of additional troops on top of the drawdown already planned," according to budget documents.

The legislation would curb pay raises, but it would also reject proposed fee increases for the Tricare health care system and renew combat pay and other benefits.

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