thedrifter
02-20-09, 11:21 AM
Military Update:
Mullen, coalition at odds over ‘Redux’ bonus
By Tom Philpott, Special to Stars and Stripes
Pacific edition, Saturday, February 21, 2009
Adm. Mike Mullen, chairman of the Joint Chiefs, will not join a chorus of critics who oppose the $30,000 bonus offer made to careerists in their 15th year of service if they agree to accept a less generous retirement plan.
Mullen, in our interview two weeks ago, suggested the Redux bonus, officially titled the Career Status Bonus, is a reasonable tool to help hold down soaring personnel costs.
Next week the Military Coalition, a consortium of 35 military and veterans associations, will urge Congress to repeal the Redux bonus offer as a bad deal for almost any careerist enticed to take it.
"The Redux bonus saves the government incredible amounts of money," said coalition co-chairman Joe Barnes who also is national executive director of the Fleet Reserve Association. "But over time the value of that decision is not very good for servicemembers."
If Congress can’t find dollars to kill the bonus, the coalition will urge lawmakers to force the services to do more to educate careerists on the value of retirement benefits they are trading away for near-term cash.
A worse-case scenario is an enlisted member who retires at 20 years in pay grade E-7 at age 38. The loss in lifetime retirement pay from accepting the bonus is $344,400, according to the Center for Naval Analyses.
"I understand the issue very well," said the JCS chairman Mullen.
He recalled a conversation several years back with his late friend, retired Adm. Donald Pilling, then co-chair of the Defense Advisory Committee on Military Compensation. Pilling shared with Mullen data showing what a strong pull cash-in-hand had on servicemembers versus the promise of bigger retirement checks in their future.
"Pilling said in their sampling, across the board, young people are going to take the money. You couldn’t make the case to the 31-year-old that [they would be forfeiting] $300,000, or whatever the number is. They’re just too young. They just haven’t kicked into it yet. ... Where he was headed with this was a compensation system that was much more affordable because of this kind of provision," said Mullen.
"So where I end up on that is that I’m OK with" the Redux bonus, Mullen said, assuming "somebody is going to make a mature decision about what they want to do."
Accepting the Redux bonus gets more out of balance each year because it hasn’t been adjusted for inflation. To restore its purchasing power back to when it was conceived, in 1999, it would need to be $38,500 today, said Peter Rossi with the Department of Defense’s Office of the Actuary.
"The idea is to let it die a slow and painful death," an official said.
Steve Strobridge, director of government relations for Military Officers Association of America, said Congress ironically has cracked down on payday lenders who prey on cash-strapped service personnel but still it allows the Redux bonus to "bamboozle" careerists out of earned retirement.
For an E-7 who will retire at 20 years, taking the bonus is equivalent to taking out an annual mortgage on retirement with a 24 percent interest rate, said Strobridge. The rate is 35 percent for an O-5 who retires at 20.
The debate over Redux is intensifying amid signs more members are taking the cash to get through hard times, reversing a steady decline in "take rates" since the bonus began in 2001. The Air Force enlisted take-rate surpassed 50 percent the last two years. Only 9 percent of Air Force officers shifted to Redux but that was up from 5.6 percent in fiscal 2006.
Through the first four months of this fiscal year, 27 percent of Navy enlisted shifted to Redux, up from 24 percent in 2008. Five percent of Navy officers have taken the bonus since October, up only slightly, from four percent, in the previous 12 months.
Marine Corps take rates have declined steadily through last September. Six percent of officers and 18 percent enlisted took the bonus in fiscal 2008. Marine take rates for the last four months were not available. The Army had no take rates readily available or on file with the DoD actuary.
By law, the services must offer the bonus in the 15th year of service. If accepted while members are in a war zone, the money is tax exempt. Otherwise, the payment nets out at about $25,500 for enlisted, with a bigger tax bite felt by officers who typically are in higher tax bracket.
The decision to move from the more generous High-3 retirement plan to Redux is irrevocable. After 20 years’ service, High-3 pays an annuity equal to 50 percent of average basic pay over a member’s three highest income years. Redux pays 40 percent for 20 years’ service.
The annuity disparity narrows for each year served beyond 20 so that, on retiring at 30 years, members under Redux or High-3 both get an annuity equal to 75 percent of high-three average basic pay.
However, the High-3 annuitant is fully protected from inflation with annual cost-of-living adjustments to match the federal Consumer Price Index (CPI). COLAs for Redux retirees are set at CPI minus one percentage point.
At age 62, Redux retirees get a one-time catch-up raise so that, for a year, their retired pay is equal to that of High-3 peers. But then Redux COLA caps continue into old age.
Barnes said he appreciates that Mullen has to worry about balancing personnel costs with other readiness needs including money to modernize weapon systems and to buy enough ships and aircraft.
"That challenge is not new and it is significant," he said. But the coalition wants promised retirement benefits protected from harmful choices.
To comment, e-mail milupdate@aol.com, write to Military Update, P.O. Box 231111, Centreville, VA, 20120-1111 or visit: militaryupdate.com
Ellie
Mullen, coalition at odds over ‘Redux’ bonus
By Tom Philpott, Special to Stars and Stripes
Pacific edition, Saturday, February 21, 2009
Adm. Mike Mullen, chairman of the Joint Chiefs, will not join a chorus of critics who oppose the $30,000 bonus offer made to careerists in their 15th year of service if they agree to accept a less generous retirement plan.
Mullen, in our interview two weeks ago, suggested the Redux bonus, officially titled the Career Status Bonus, is a reasonable tool to help hold down soaring personnel costs.
Next week the Military Coalition, a consortium of 35 military and veterans associations, will urge Congress to repeal the Redux bonus offer as a bad deal for almost any careerist enticed to take it.
"The Redux bonus saves the government incredible amounts of money," said coalition co-chairman Joe Barnes who also is national executive director of the Fleet Reserve Association. "But over time the value of that decision is not very good for servicemembers."
If Congress can’t find dollars to kill the bonus, the coalition will urge lawmakers to force the services to do more to educate careerists on the value of retirement benefits they are trading away for near-term cash.
A worse-case scenario is an enlisted member who retires at 20 years in pay grade E-7 at age 38. The loss in lifetime retirement pay from accepting the bonus is $344,400, according to the Center for Naval Analyses.
"I understand the issue very well," said the JCS chairman Mullen.
He recalled a conversation several years back with his late friend, retired Adm. Donald Pilling, then co-chair of the Defense Advisory Committee on Military Compensation. Pilling shared with Mullen data showing what a strong pull cash-in-hand had on servicemembers versus the promise of bigger retirement checks in their future.
"Pilling said in their sampling, across the board, young people are going to take the money. You couldn’t make the case to the 31-year-old that [they would be forfeiting] $300,000, or whatever the number is. They’re just too young. They just haven’t kicked into it yet. ... Where he was headed with this was a compensation system that was much more affordable because of this kind of provision," said Mullen.
"So where I end up on that is that I’m OK with" the Redux bonus, Mullen said, assuming "somebody is going to make a mature decision about what they want to do."
Accepting the Redux bonus gets more out of balance each year because it hasn’t been adjusted for inflation. To restore its purchasing power back to when it was conceived, in 1999, it would need to be $38,500 today, said Peter Rossi with the Department of Defense’s Office of the Actuary.
"The idea is to let it die a slow and painful death," an official said.
Steve Strobridge, director of government relations for Military Officers Association of America, said Congress ironically has cracked down on payday lenders who prey on cash-strapped service personnel but still it allows the Redux bonus to "bamboozle" careerists out of earned retirement.
For an E-7 who will retire at 20 years, taking the bonus is equivalent to taking out an annual mortgage on retirement with a 24 percent interest rate, said Strobridge. The rate is 35 percent for an O-5 who retires at 20.
The debate over Redux is intensifying amid signs more members are taking the cash to get through hard times, reversing a steady decline in "take rates" since the bonus began in 2001. The Air Force enlisted take-rate surpassed 50 percent the last two years. Only 9 percent of Air Force officers shifted to Redux but that was up from 5.6 percent in fiscal 2006.
Through the first four months of this fiscal year, 27 percent of Navy enlisted shifted to Redux, up from 24 percent in 2008. Five percent of Navy officers have taken the bonus since October, up only slightly, from four percent, in the previous 12 months.
Marine Corps take rates have declined steadily through last September. Six percent of officers and 18 percent enlisted took the bonus in fiscal 2008. Marine take rates for the last four months were not available. The Army had no take rates readily available or on file with the DoD actuary.
By law, the services must offer the bonus in the 15th year of service. If accepted while members are in a war zone, the money is tax exempt. Otherwise, the payment nets out at about $25,500 for enlisted, with a bigger tax bite felt by officers who typically are in higher tax bracket.
The decision to move from the more generous High-3 retirement plan to Redux is irrevocable. After 20 years’ service, High-3 pays an annuity equal to 50 percent of average basic pay over a member’s three highest income years. Redux pays 40 percent for 20 years’ service.
The annuity disparity narrows for each year served beyond 20 so that, on retiring at 30 years, members under Redux or High-3 both get an annuity equal to 75 percent of high-three average basic pay.
However, the High-3 annuitant is fully protected from inflation with annual cost-of-living adjustments to match the federal Consumer Price Index (CPI). COLAs for Redux retirees are set at CPI minus one percentage point.
At age 62, Redux retirees get a one-time catch-up raise so that, for a year, their retired pay is equal to that of High-3 peers. But then Redux COLA caps continue into old age.
Barnes said he appreciates that Mullen has to worry about balancing personnel costs with other readiness needs including money to modernize weapon systems and to buy enough ships and aircraft.
"That challenge is not new and it is significant," he said. But the coalition wants promised retirement benefits protected from harmful choices.
To comment, e-mail milupdate@aol.com, write to Military Update, P.O. Box 231111, Centreville, VA, 20120-1111 or visit: militaryupdate.com
Ellie