Points of Interest: Uncertain Road to Redux Reform

By Tom Philpott

It is uncertain what impact Republican leaders' rejection of a quick Redux deal will have on long-term prospects for change. But the Lott/Gingrich decision clearly gives opponents of retirement reform, including taxpayer watchdog groups, several more months to rally their forces. The decision also set up President Clinton as the lead proponent for raising retired pay for two-thirds of the current force.

It was Representative John P. Murtha (D-PA) who brought Redux reform to a head before Republicans were ready to deal with it. As November elections approached and Congress rushed toward adjournment, lawmakers combined multiple appropriations bills into one omnibus spending bill. The package included a $9.5 billion defense supplement to cover Bosnian operations, readiness-related improvements, intelligence programs, and ballistic missile defense research.

Murtha, ranking Democrat on the House Appropriations National Security Subcommittee, decided to tack on a proposal to eliminate Redux and shift those active-duty members to High-3, the middle of three military retirement plans. High-3 now covers only members who entered service from 9 September 1980 to 31 July 1986.

High-3 pays 50% of basic pay after 20 years of service, and provides annual cost-of-living adjustments (COLAs) to match inflation. Redux, by contrast, pays only 40% of basic pay after 20 years and caps annual COLAs to a percentage point below inflation, as measured by the Consumer Price Index (CPI). Redux retirees would get catch-up COLA at age 62 to restore lost purchasing power since retirement. But the CPI-minus 1 formula would continue thereafter.

Murtha's original idea would have cost about $5 billion over the five-year defense plan. As it gained support, the Defense Department began working with Murtha on a less costly alternative, a plan that could be called "High-3 Lite." Under this proposal, a 20-year Redux retiree would receive 50% of average annual basic pay over the member's highest three earning years, matching the High-3 annuity formula. But Murtha agreed to leave Redux COLAs alone. Defense officials told him a return to full cost of living adjustments would create a disparity with civilian employees under the Federal Employees Retirement System (FERS). FERS was enacted about the same time as Redux and with a similar, though not identical, COLA formula.

Defense officials also promised Murtha they would use a portion of the money not spent on full COLAs for the Redux generation to "reform" of the military pay table. So Murtha amended his proposal and Bowles urged Lott and Gingrich to accept it as part of the omnibus bill. They declined. Congressional sources said senior Republicans on the Senate Armed Services Committee and the House National Security Committee had urged Lott and Gingrich to reject the deal. Military retirement is too important and costly to change without hearings and a full debate of alternative reforms, they said.

It's also quite likely Republicans didn't want Democrats stealing the spotlight on retirement reform. If there are to be improvements, a Republican majority wants the most prominent role in shaping the changes.

At the Pentagon, a senior Defense official said plans to improve Redux and raise basic pay in the 2000 budget are beginning to "crystallize." So far the pay package has three pieces:

  • A series of annual raises across all ranks and grades that, at a minimum, will match private sector wage growth.
  • Military pay table reform. The highlight here would be a special hike of 4% or so for middle enlisted grades (E-5 and above) and middle-grade officers (O-3 through O-5). Mid-career personnel "have really acquired a key skill set," the Defense official said. "They're the most valuable [people] in day-to-day activities. We'd like to see that value rewarded in the pay tables." The main idea in pay table reform would be to boost increases tied to promotion—that is, performance—and hold down raises linked to longevity or years of service.
  • Redux reform. Step one would follow through on Murtha's effort to raise the Redux annuity formula to 50% for 20-year retirees, a move said to cost $2.7 billion over the five-year defense plan.

Step two would be adoption for the Redux generation of the FERS cost-of-living-adjustment formula, resulting in slightly higher COLAs than Redux would provide during periods of low inflation. The FERS formula states that when inflation exceeds 3%, COLAs are set at CPI-minus 1%; when inflation falls between 2 and 3 percent, COLAs are set at 2%; when inflation dips below 2%, COLAs match the year-over-year change in the Consumer-Price Index.

As his staff continues to massage the details, Defense Secretary William Cohen expressed confidence that military people will get a strong signal soon that compensation is improving. "I am satisfied that we will have a pay and retirement that will be very attractive to those who serve," he said.

 

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