thedrifter
03-28-08, 06:47 AM
Raises, COLA create retirement disparities
By Tom Philpott, Special to Stars and Stripes
Pacific edition, Saturday, March 29, 2008
Older military retirees like Marine Corps Master Sgt. Lanny Bauer, 68,
of Stockton, Calif., do not begrudge current servicemembers for a
string
of annual pay raises that have exceeded wage growth in the private
sector.
Every dollar they get is deserved and likely is needed to keep quality
volunteers in wartime, he says. But Bauer also sees those active-duty
pay raises, compared to annual cost-of-living adjustments for military
retirees, creating a disparity between annuities paid to members
retiring today and folks like him who retired 30 years ago.
“Unless I’m wrong, there’s at least a $500 a month gap right
now”
between his monthly retired pay and that of an E-8, also with 20
years’
service, who retires under 2008 basic pay scales.
Isn’t it time, Bauer asks, for the government to “recompute”
retired pay
of older retirees using more current pay scales?
Associations representing military retirees routinely field questions
like this, particularly in years like this one when the active duty
raise, at 3.5 percent, was bigger than the cost-of-living adjustment
for
retirees, which was 2.3 percent. Indeed from 1998 through 2007, raises
to basic pay, on which future retired pay is based, have exceeded
retiree COLAs for eight of those 10 years. The exceptions were 2006 and
2007 when COLAs were a percentage point higher each year.
Why aren’t advocates for older retirees alarmed by this disparity?
The chief reason is that active-duty raises and retiree COLAs serve
separate purposes. Annual COLAs, said Steve Strobridge, director of
government relations for the Military Officers Association of America,
are “to maintain the same retired pay purchasing power each member
had
at retirement.” They are based on inflation as measured by the
government’s Consumer Price Index. Military retirees each year get
the
same increase as federal civilian retirees, survivors and social
security recipients.
Active-duty pay raises are tied to private sector wage growth and
recently have exceeded that growth to close a military-civilian pay
gap.
These raises are linked to the government’s Employment Cost Index
which
tracks wage growth nationwide. The connection to the ECI, Strobridge
said, “is essential to sustain a quality force and to maintain
readiness.”
Beginning in the 1920s, and for five decades, retiree raises were tied
loosely to active-duty pay increases. Then in 1958, with Congress
planning to raise active-duty pay 10 percent, another retired pay
“recomputation” was deemed to be too costly. Retirees saw no pay
adjustment again until 1963 when the link was established between
retiree COLAs and the CPI.
Since then active-duty raises and retiree COLAs have differed, and not
always in favor of the active force. In six of 12 years from 1969 and
1980, retirees received two COLAs a year. In some years, they even
received a 1 percent “kicker” to compensate for lost purchasing
power
due to time delays between when inflation was measured and a COLA was
paid.
“From the mid-’80s through the mid-’90s, COLAs were generally
higher
than active-duty pay raises,” Strobridge said, adding that was
primarily
because the government intentionally capped military raises below the
ECI.
Given that history, advocates for retirees know that economic or
political change can swing the pendulum of higher pay adjustments back
to retirees. It might even happen soon, given trends in fuel and food
prices.
“Higher-than-ECI pay hikes to close a significant pay gap are well
deserved,” said Joe Barnes, executive director of the Fleet Reserve
Association. “But it’s important to keep in mind that not everyone
in
the retirement community is receiving the richer retirement benefit. We
point to this in discussing the drastic [Tricare] fees hikes proposed
by
the Defense Department.”
To assess the effect on retired pay, we asked defense pay officials to
compare current retired servicemembers for some typical ranks and years
of service — officers and enlisted — who retired in 1998 versus
those
who retired this year. The results show newer retirees drawing higher
retired pay, with the pay differences from $200 to $300 a month.
Bauer’s own estimate of at least a $500 a month disparity with newly
retired E-8s was off for another reason. He didn’t know that newer
retirees, those who entered service on or after Sept. 8, 1980, come
under a “high-three” retirement formula, which lowers their initial
annuities significantly.
Older retirees’ annuities are based on a percentage of final basic
pay.
For example, given Bauer’s 20 years of service, his retired pay is
set
at 50 percent of final basic pay, plus annual COLAs received since he
retired.
But high-three retirees who served 20 years have their 50 percent
multiplier applied to average basic pay over their highest-three
earning
years, which typically means over their last three years on active
duty.
Members who retired in 2001 after 20 years were the first group
impacted
by high-three. They also missed out on the string of above-average pay
raises that followed. So an E-8 who retired after 20 in 2001 draws
retired pay that is about $400 less a month than a 2008 retiree, and
$440 less a month than for an E-8 who retired after 20 way back in
1973.
That ’73 group, it turns out, draws a bigger retirement than any
other
for 20 years’ service, having benefited from a pop in basic pay as
the
all-volunteer force began and also from that brief era of twice-yearly
COLAs.
Ellie
By Tom Philpott, Special to Stars and Stripes
Pacific edition, Saturday, March 29, 2008
Older military retirees like Marine Corps Master Sgt. Lanny Bauer, 68,
of Stockton, Calif., do not begrudge current servicemembers for a
string
of annual pay raises that have exceeded wage growth in the private
sector.
Every dollar they get is deserved and likely is needed to keep quality
volunteers in wartime, he says. But Bauer also sees those active-duty
pay raises, compared to annual cost-of-living adjustments for military
retirees, creating a disparity between annuities paid to members
retiring today and folks like him who retired 30 years ago.
“Unless I’m wrong, there’s at least a $500 a month gap right
now”
between his monthly retired pay and that of an E-8, also with 20
years’
service, who retires under 2008 basic pay scales.
Isn’t it time, Bauer asks, for the government to “recompute”
retired pay
of older retirees using more current pay scales?
Associations representing military retirees routinely field questions
like this, particularly in years like this one when the active duty
raise, at 3.5 percent, was bigger than the cost-of-living adjustment
for
retirees, which was 2.3 percent. Indeed from 1998 through 2007, raises
to basic pay, on which future retired pay is based, have exceeded
retiree COLAs for eight of those 10 years. The exceptions were 2006 and
2007 when COLAs were a percentage point higher each year.
Why aren’t advocates for older retirees alarmed by this disparity?
The chief reason is that active-duty raises and retiree COLAs serve
separate purposes. Annual COLAs, said Steve Strobridge, director of
government relations for the Military Officers Association of America,
are “to maintain the same retired pay purchasing power each member
had
at retirement.” They are based on inflation as measured by the
government’s Consumer Price Index. Military retirees each year get
the
same increase as federal civilian retirees, survivors and social
security recipients.
Active-duty pay raises are tied to private sector wage growth and
recently have exceeded that growth to close a military-civilian pay
gap.
These raises are linked to the government’s Employment Cost Index
which
tracks wage growth nationwide. The connection to the ECI, Strobridge
said, “is essential to sustain a quality force and to maintain
readiness.”
Beginning in the 1920s, and for five decades, retiree raises were tied
loosely to active-duty pay increases. Then in 1958, with Congress
planning to raise active-duty pay 10 percent, another retired pay
“recomputation” was deemed to be too costly. Retirees saw no pay
adjustment again until 1963 when the link was established between
retiree COLAs and the CPI.
Since then active-duty raises and retiree COLAs have differed, and not
always in favor of the active force. In six of 12 years from 1969 and
1980, retirees received two COLAs a year. In some years, they even
received a 1 percent “kicker” to compensate for lost purchasing
power
due to time delays between when inflation was measured and a COLA was
paid.
“From the mid-’80s through the mid-’90s, COLAs were generally
higher
than active-duty pay raises,” Strobridge said, adding that was
primarily
because the government intentionally capped military raises below the
ECI.
Given that history, advocates for retirees know that economic or
political change can swing the pendulum of higher pay adjustments back
to retirees. It might even happen soon, given trends in fuel and food
prices.
“Higher-than-ECI pay hikes to close a significant pay gap are well
deserved,” said Joe Barnes, executive director of the Fleet Reserve
Association. “But it’s important to keep in mind that not everyone
in
the retirement community is receiving the richer retirement benefit. We
point to this in discussing the drastic [Tricare] fees hikes proposed
by
the Defense Department.”
To assess the effect on retired pay, we asked defense pay officials to
compare current retired servicemembers for some typical ranks and years
of service — officers and enlisted — who retired in 1998 versus
those
who retired this year. The results show newer retirees drawing higher
retired pay, with the pay differences from $200 to $300 a month.
Bauer’s own estimate of at least a $500 a month disparity with newly
retired E-8s was off for another reason. He didn’t know that newer
retirees, those who entered service on or after Sept. 8, 1980, come
under a “high-three” retirement formula, which lowers their initial
annuities significantly.
Older retirees’ annuities are based on a percentage of final basic
pay.
For example, given Bauer’s 20 years of service, his retired pay is
set
at 50 percent of final basic pay, plus annual COLAs received since he
retired.
But high-three retirees who served 20 years have their 50 percent
multiplier applied to average basic pay over their highest-three
earning
years, which typically means over their last three years on active
duty.
Members who retired in 2001 after 20 years were the first group
impacted
by high-three. They also missed out on the string of above-average pay
raises that followed. So an E-8 who retired after 20 in 2001 draws
retired pay that is about $400 less a month than a 2008 retiree, and
$440 less a month than for an E-8 who retired after 20 way back in
1973.
That ’73 group, it turns out, draws a bigger retirement than any
other
for 20 years’ service, having benefited from a pop in basic pay as
the
all-volunteer force began and also from that brief era of twice-yearly
COLAs.
Ellie