After 25 years of service, including combat tours in Afghanistan and Iraq, Lt. Col. Stephen Preston retired from the Army and began collecting a pension of nearly $55,000 a year. The money made it possible for Preston to go back to college, get his MBA and embark on a second career in corporate strategy.
So it happened that Preston was sitting in his new office shortly before Christmas when he heard on the radio that he had become the latest target in Washington’s war on spending.
“I’m not an angry man, but I was very, very angry,” Preston, 51, said in a telephone interview from his home in Tampa. “This is a pact between the greater population of the United States and the fraction of people who served and sacrificed. If you didn’t want to pay us what you promised us, then you probably shouldn’t have promised it.”
The plan to trim pension increases for working-age military retirees such as Preston is by far the most controversial provision in a bipartisan budget deal approved by Congress and signed last week by President Obama.
The cut is small — a one-percentage-point reduction in the annual cost-of-living increase — but it has provoked outrage among veterans, some of whom argue that the country is reneging on a solemn pact. And even though lawmakers, especially in the GOP, fulminate about the need to cut the cost of federal health and retirement benefits, many have vowed to roll the cut back when Congress returns to work next week.
The authors of the budget deal, House Budget Committee Chairman Paul Ryan (R-Wis.) and Senate Budget Committee Chairman Patty Murray (D-Wash.), have agreed to amend the provision to exempt disabled retirees and survivors of those killed in action, eliminating roughly 10 percent of the $6 billion in savings projected over the next decade.
But Ryan has resisted efforts to abandon the pension cut entirely, calling it a “modest” adjustment to a particularly generous program — and therefore a more sensible choice than harder decisions that may lie ahead.
“I stand behind the need for reform,” Ryan wrote in a Dec. 22 op-ed in USA Today. Noting that a special commission is due in May to make recommendations for an overhaul of the military compensation system, Ryan wrote, “That’s why this reform does not take effect until the end of 2015 — it gives Congress ample time to consider alternatives.”
Opponents say the policy retroactively penalizes a deserving group while doing nothing to contain the much larger cost of health and retirement benefits for the general public. Independent budget analysts note, however, that lawmakers have shied away from reductions in federal retirement benefits for any recipients — including changes to Social Security and Medicare included in Obama’s most recent budget request — illustrating the enormous political difficulty of trimming the federal government’s largest category of expenditures.
“It’s easy to be bold and brave in general, but it’s very hard to be bold and brave in specific,” said Richard Kogan, a former Obama budget adviser who works at the left-leaning Center on Budget and Policy Priorities.
“You can talk about ‘reforming entitlements.’ But you can’t talk about ‘cutting Social Security,’ because the public knows what that means,” Kogan said. “Now, we’ve got $6 billion taken from military pensions — an infinitesimally small provision — and it causes people heartburn because it’s specific.”
Military pensions have long been on the chopping block, in part because the Pentagon, like many government and private entities, is struggling to cover the cost of promises made to people who now typically spend long decades in retirement. In 2012, 2.3 million military retirees and survivors of those killed in action received about $52 billion in payments, a nearly 50 percent increase over 2002, according to Defense Department actuaries.
Overall, military compensation — including health benefits and salaries paid to active-duty personnel — eats up roughly half the defense budget, a proportion that is steadily rising. In a speech in November, Defense Secretary Chuck Hagel warned that “without serious attempts to achieve significant savings” in military compensation, “we risk becoming an unbalanced force.”
Military pensions would appear to be particularly ripe for reduction. Anyone who puts in 20 years can receive payments immediately and look forward to annual cost-of-living adjustments, or COLAs, for life. That means service members who signed up at 18 could find themselves with a full pension — roughly half their active-duty paycheck — at 38. And the government finds itself doling out cash to former troops who have launched lucrative second careers, often with defense contractors that draw their profits from government coffers.
In 2010, as part of a sweeping proposal to rebalance the federal budget, an independent deficit reduction commission appointed by Obama suggested eliminating COLAs for military retirees younger than 62.
In the budget deal they hammered out this month, Murray and Ryan took a less drastic approach, proposing to knock one percentage point off annual COLAs for working-age retirees. Under the provision, which takes effect in 2015, pensions will be recalculated at age 62 so retirees thereafter receive the same amount they would have if the reduction had never happened.
The provision accounts for a fraction of the $85 billion in savings identified in the budget deal. Ryan has called it a reasonable adjustment to a program that benefits a small portion of military men and women, only 17 percent of whom serve long enough to qualify for a pension.
“If a serviceman enlisted at 18 and retired at 38, under this policy his lifetime benefit would be about $1.7 million instead of $1.8 million,” Ryan wrote in USA Today. “For a service member who retired at the average military retirement age of 44, the difference would be smaller, about $30,000 over his or her lifetime.”
“And to be clear, the money we save from this reform will go right back to the military,” Ryan wrote. “Veterans aren’t Washington’s piggy bank.”
Opponents of the policy do not deny the need to overhaul military pensions, or military compensation in general. But they argue that changes should be made for future enlistees, not for people who have already served and planned their lives around promised benefits.
Mike Hayden, director of government relations for the Military Officers Association of America, noted that Congress directed the commission analyzing military compensation to grandfather the current force in its recommendations. The budget deal, Hayden said, “is definitely a change of the contract that we’ve made with the currently serving.”
Broader Approach Sought
Just as troubling, opponents say, is the cavalier manner in which budget negotiators cherry-picked savings from the military to cover the cost of a small budget deal that solves none of the nation’s biggest problems. “It’s horrible policy. If we’re going to reform entitlements, let’s do it in a fashion that’s comprehensive,” said Sen. Lindsey O. Graham (R-S.C.), an advocate of broad entitlement reform who voted against the budget deal and is campaigning to overturn the military pension provision.
Graham said it would be more acceptable — and more fiscally responsible — to adopt a less generous measure of inflation for all federally compensated retirees, including Social Security recipients. The nonpartisan Congressional Budget Office projects that the alternative inflation measure, known as chained CPI, or chained consumer price index, would save more than $200 billion over the next decade — 33 times the savings forecast from changing military COLAs alone.
This agreement “is not an effort to deal with the entitlement problem,” Graham said. “This is an effort to single out one group of people and put a penalty on their benefits that you’re not putting on anybody else. And this would be the last group we’d want to penalize, I think, not the first.”
Preston, the retired soldier, agrees. He said he nearly retired from the military after 10 years but was talked into staying by a battalion commander who explained the wisdom of putting in 20. Then the nation went to war in Iraq and Afghanistan, and Preston said he felt an obligation to “stick it out a little longer.”
“Those of us who make it to 25, 30 years, we deserve to get what we were promised,” he said. “It isn’t even really about the money. If we need to balance our budget, fine... But let’s not balance it by breaking the deal you have with me, who served, in order to provide for somebody who just showed up. You just don’t do that.”
This piece originally appeared in The Washington Post.
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