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Possible cuts in military retired pay are under discussion in budget talks headed by Vice President Biden.
The talks, underway for more than a month, aim to reach an agreement by Aug. 2 on a budget package that would include federal spending cuts equal to any increase in the $14.3 trillion debt ceiling. Although no specifics have been set, negotiators are discussing roughly $2 trillion in cuts and a $2 trillion increase in the debt ceiling.
August is the drop-dead date to reach an agreement, as the federal government has already hit the $14.3 trillion debt ceiling and is dipping into cash reserves and taking other action to prevent default. Negotiators said Thursday they hope to have an agreement ready for a vote in the House and Senate in early July.
Biden told reporters after Thursday's budget negotiations that he expects the pace of the talks to pick up next week.
Two retirement changes are in play.
One possible change involves how cost-of-living adjustments are calculated. The change, which would save up to $24 billion over 10 years, would apply to military and federal civilian retired pay, veterans disability, and survivor benefits. Instead of linking annual COLAs for benefits and retired pay to the Consumer Price Index for Urban Wage Earners (CPI-W), the new plan would link increases to the Consumer Price Index for All Urban Consumers (CPI-U). Estimates say this change would result in annual COLAs that average 0.25 percent less.
If adopted, the change from CPI-W to CPI-U would apply to all future cost-of-living adjustments, including for current retirees.
The second change involves a complete overhaul of military retired pay. In most discussions, the overhaul would not apply to any current retirees or anyone now in the military but would end the 20-year retirement system. Future service members would earn some retirement benefits after 10 years of service, but only people retired on disability would receive immediate retired pay. Those not retired on disability would wait until age 60 or older before retired pay begins.
The Defense Department has been pushing for a fundamental overhaul of retired pay since Donald Rumsfeld was defense secretary, but officials have had difficulty getting the services and key lawmakers to fight for it.
Although unpopular in military circles, military retirement reform has been included on many lists of ways to cut federal spending, including recommendations from the co-chairman of President Obama's National Commission on Fiscal Responsibility and Reform.
Defense Secretary Robert Gates discussed retirement reform on Wednesday in testimony before the Senate Appropriations Committee and said he wanted to address two issues. "One is about 70 to 80 percent of our force does not stay in the service long enough to retire, but they leave with nothing," Gates said.
"If you've served five years or 10 years or a dozen years, you walk out the door with nothing. That doesn't make any sense," Gates said. "The private sector is well ahead of us in that respect."
The second issue, Gates said, is that 20-year retirement encourages people to leave when the military wants some to stay. "We get a lieutenant colonel or a sergeant first class with 20 years of service — they are at their peak, they are at their prime, and we make it financially silly for them not to retire at 20 years," Gates said. He added that what was needed is a plan to "incentivize them to give us another five years of service."
The Defense Department has not provided an estimate of how much this might save, but the immediate effect would be very small because current service members would be exempt. The only immediate impact would be a small change in the contribution made by the services into the military retirement trust fund.