Federal retiree benefits could face cuts in deficit talks

Federal annuities could be at risk, along with government pay and other benefits, as lawmakers comb the budget in search of potential savings.

Steve Strobridge, director of government relations at the Military Officers Association of America, said an overhaul of the military retirement system is "allegedly . . . one possible item on the list" of proposals being considered in the deficit reduction talks.

The changes, which are based on a 2009 report on military compensation, would shift service members to a civilian system under which full annuities wouldn't be paid until beneficiaries reach age 57 to 60. Defense's contributions would vary annually based on changing retention and skill requirements under the new system, and service members who stay in for 10 years would not lose contributions to their retirement funds.

Under the current system, military personnel are eligible for pension payments after 20 years of service. According to Strobridge,current service members and retirees would be exempt from the changes, which would affect only new personnel. The 20-year requirement keeps retention and readiness high, he said, noting that proposals to cut overall military retirement costs while implementing an expensive vesting strategy increase the burden on career service members.

"The whole concept of the military retirement system is to induce people to put up with extreme sacrifices for 20 to 30 years," Strobridge said. "You can't civilianize compensation without civilianizing service conditions, and we're certainly not going to do that."

Former Secretary of Defense Robert Gates criticized the current military retirement system. During a Senate Appropriations Committee hearing last month, Gates told lawmakers that up to 80 percent of service members do not stay long enough to retire and receive no benefits, while the 20-year model incentivizes personnel to shorten their careers when the military needs them to stay.

An attempt by Congress to reform the military retirement system in 1986 was less severe than the current proposal, but did affect service member retention, Strobridge said. "Having proven that a much lesser cut has hurt retention and readiness, I'm surprised they are considering a much larger cut," he said.

Also up for debate is the government's method for calculating cost-of-living adjustments for Social Security recipients, which in turn could reduce COLAs paid to federal civilian and military retirees. COLAs are determined based on a formula that takes into account increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, but some experts argue that a "chained CPI," which takes into account changes in purchasing habits as prices change, provides a clearer understanding of inflation.

According to Daniel Adcock, legislative director at the National Active and Retired Federal Employees Association, the proposal disproportionately affects older Americans who tend to have higher health care costs, particularly in the last few years when retirees haven't received cost-of-living adjustments. The change has been estimated to lower Social Security benefits by 3 percent over 10 years and likely would have a similar impact on federal civilian and military retiree COLAs, he said.

"One of the things you could possibly see is you don't change the Social Security COLA, but you do change the federal civilian and military COLA because they are much smaller programs and you'll take less heat from 2.3 million federal workers than 40 million Social Security beneficiaries," Adcock said.