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Debt panel takes aim at military

Tom Philpott

Military members and retirees have more financial darts to dodge after a second bipartisan task force on reducing the nation’s debt unveiled a different set of cost-cutting recommendations on Wednesday.

The Debt Reduction Task Force, co-chaired by former Republican Sen. Pete Domenici and economist Alice Rivlin, takes sharper aim at the military community including active duty forces still at war in Afghanistan.

In the unlikely event Congress approves the Domenici-Rivlin plan for cutting military retirement, members who haven’t served more than 15 years would find themselves under a cheaper, “more flexible” and complex plan.

Proponents argue that many more members under the proposed plan would qualify for some retirement, at age 60, if they serve 10 years or more. But completion of a traditional 20-year career no longer would qualify for an immediate annuity on leaving service. Retired pay would begin at age 57.

Debt Panel II, as it might be called, began its work in January at the Bipartisan Policy Center, a Washington D.C. think tank founded by four former Senate majority leaders. Like last week’s report from the National Commission on Fiscal Responsibility and Reform, co-chaired by Alan Simpson and Erskine Bowles, this report warns of an approaching debt tsunami that could destroy America prosperity if government spending isn’t slashed and taxes raised.

Among scores of initiatives are recommendations to raise social security payroll taxes, cap medical malpractice awards, freeze defense spending for five years and reduce active force strength by 275,000.

Both this and last week’s report recommend adoption of a modified Consumer Price Index to dampen annual cost-of-living adjustments (COLAs) for federal entitlements including military and federal civilian retired pay, social security, veterans’ compensation and survivor benefits.

Both reports also call for cutting military retirement and having TRICARE beneficiaries pay more out of pocket for coverage. But the Domenici-Rivlin panel would wield a shaper knife on both major benefits.

On retirement, Debt Panel II embraces reforms proposed by the 10th Quadrennial Review of Military Compensation in 2008. The idea is to allow more members to earn some retirement — making the plan more “fair” and, for force managers, more flexible — while slashing overall program costs.

Two of four features — a defined annuity and a government-funded Thrift Savings Plan (TSP) with vesting after 10 years — would apply to all members who get pushed under the new plan.

The annuity formula is familiar at 2.5 percent of average annual basic pay (but for their highest five earning years not the highest three average) multiplied by total years served. Payments would start at age 60 for those who serve 10 to 19 years and at 57 for those who serve 20 or more.

Government contributions to TSP accounts would start in year two and equal two percent of basic pay. They would climb to three percent in year three and four, to four percent in year five, and to five percent thereafter.

The services would control the plan’s other two features: “gate pays” to help draw members to time-in-service milestones, and separation pay.

Critics argue the plan is too complex and would leave members confused as to the real value of their retirement. The QRMC proposed that the plan be tested on a few thousand volunteers. That wasn’t done. Yet Debt Panel II proposes transitioning most current members to the new plan.