Action in Congress

Dec. 1, 2006

Pay Hikes Approved

In passing the 2007 Defense Authorization Act, members of Congress put their final stamp of approval on new military pay raises, expanded retention incentives, and enhancements of some benefits—particularly for members of the Guard and Reserve.

The $532.8 billion authorization, which President Bush signed Oct. 17 and which includes Energy Department national security funding, will deliver a 2.2 percent pay raise in January to most service members. It also will provide a special April 2007 raise, targeted to middle-grade enlisted members and most warrant officers. Specifically, members in pay grades E-5 with eight or more years of service and in E-6 and E-7 with 12 years or more service will see additional raises up to 2.5 percent next spring.

Compensation gains were thinner than what service members and retirees have come to expect, based on other legislative action in recent years.

Bush Thumped on Tricare

Congress decisively turned back the Bush Administration’s plan to raise out-of-pocket Tricare costs to under-62 retirees and their families.

That meant lawmakers needed to find about $490 million to pump back into the Defense Department’s proposed 2007 military health budget.

“It was important, for reasons of equity, that we turned back the Tricare fee and deductible increases,” said Rep. John McHugh (R-N.Y.), chairman of the House Armed Services military personnel committee, in an interview.

Many lawmakers were “disturbed” that the first place identified for economy in the military health care system was “the backs of beneficiaries,” McHugh said. “It just seemed almost intuitive that there ought to be other places to go to first, particularly in time of war.”

Pay, Benefits Detail

Here are the major pay and benefits initiatives Congress approved for Fiscal 2007 for the military community:

Reserve Tricare Expanded. Any drilling National Guardsman or Reservist will be eligible to enroll in a premium-based Tricare benefit by Oct. 1, 2007. Premiums are 28 percent of plan costs. When the new benefit takes effect, DOD will repeal two higher-premium tiers of Reserve Tricare coverage that Congress approved last year. (Members who enrolled in the higher premium tiers will see their premiums decrease when the universal Tricare Reserve benefit takes effect.)

Tricare Fees and Co-payments. Besides blocking plans to impose higher Tricare fees, deductibles, and co-payments on under-62 military retirees, lawmakers scrapped plans to overhaul Tricare retail network and mail-order drug co-payments. The House had voted to raise co-pays on retail drugs and eliminate co-pays for mail order drugs to encourage greater use. The Senate approved a different scheme to shuffle co-pays, including mandatory use of Tricare mail-order for maintenance medicines. Congress ultimately decided to leave co-pays for medicines unchanged while government auditors study the issues.

Tricare and Employer-Sponsored Incentives. Effective Jan. 1, 2008, employers of military retirees and other Tricare-eligible beneficiaries will be barred from offering special incentives to encourage retirees to utilize Tricare instead of employer health plans. Recognizing concern that Tricare-eligible beneficiaries not be barred from participating in the full range of cafeteria health plans offered by employers, Congress also directed DOD to file a report by next April on the potential impact of this change on non-Tricare exclusive employer health care offerings.

Debt Protection. To curb exorbitant “payday” loans that can drag service families into debt, money lenders by next fall will be prohibited from charging military members more than 36 percent annual interest on consumer loans. The law also will set strict guidelines on disclosure of loan information and will prohibit automatic loan renewals, refinancing, or consolidation without issuance of new documents and disclosure statements. Congress intends to reassess debt protection next year to ensure lenders still are making short-term loans available to military personnel.

HPSP and Medical Pays. The services are authorized to raise the $579 monthly stipend for the Health Professions Scholarship Program to as high as $2,500 a month. Other increases in medical bonuses and incentives also were approved for selected reserve health care professionals in critically short wartime specialties, for dentists, and others. The services also have authority now to pay a $400,000 accession bonus to medical officers and dentists with critical skills.

Transfer Bonus. The incentive bonus offered to members transferring between armed forces will be raised $2,500 to $10,000.

Critical Skills Bonus. A bonus of up to $50,000 could be paid to encourage retirees and reserve component members with critical skills to volunteer for active duty low-density, high-demand assignments.

40-Year Pay Chart. Effective April 1, troops who serve longer than 30 years will see an expanded basic pay chart to raise their compensation and to enhance their future retired pay. The expanded chart will provide new basic pay steps after 30, 34, and 38 years of service.

Travel Reimbursements. Service members who have household goods lost or damaged during permanent-change-of-station moves will receive full replacement value for their loss beginning in the spring of 2008. This standard will replace current reimbursements from carriers based on the weight of the damaged item, a formula that provides members only a fraction of actual replacement costs.

Retirement Age Ceiling. Mandatory retirement age for active duty generals and admirals is being raised from 62 to 64. Mandatory retirement of reserve component officers also rises, from 60 to 62 for officers at or below O-7 rank. The ceiling for O-8s and above would be raised from 62 to 64.

War Zone SGLI. For those months when service members are assigned to war zones such as Iraq and Afghanistan, the military will begin covering the premiums for $400,000 in Servicemembers’ Group Life Insurance.

Manpower Levels. The Air Force will shrink by 23,200 airmen in 2007 while the Navy will lose 12,000 sailors—changes in line with Administration requests. The Marine Corps will see a 5,000-member increase. Army strength will increase by 30,000, and Army National Guard strength will climb by 17,000 beyond the total requested by the Administration.

Voluntary Separation Incentive. A new tool to help the Air Force and Navy pare their ranks is voluntary separation pay which would be set at up to four times the amount of involuntary separation pay for overmanned ranks or specialties.

Senior Compensation Goes Up

On Jan. 1, the US military’s 36 four-star generals and admirals and its 125 lieutenant generals and vice admirals will see basic pay climb by 8.7 percent—or roughly $1,100 a month.

At present, basic pay can’t exceed Executive Level III for federal civilians, which is set at $12,667 a month or $152,000 annually. That will change to Executive Level II on Jan. 1, boosting the military basic pay ceiling to $13,767 a month or $165,200 annually. The ceiling could go even higher when Congress decides on 2007 federal civilian pay levels.

Even more significant to O-9s and O-10s are three changes to the way their retired pay is calculated. Together the changes will boost annuities to a newly retiring O-10 with 33 years of service, for example, by $37,000 a year.

The first factor is the 40-year pay chart. Also, starting Oct. 1, 2006, senior officers who retire no longer will have their annuities based on a percentage of their “capped” basic pay. Instead, retired pay will be based on basic pay levels shown in the military pay chart, which makes a huge difference.

Finally, for those who serve longer than 30 years, their annuity formulas can rise beyond the current maximum for retired pay of 75 percent of final basic pay. Now the Secretary of Defense has authority to add to a service members’ retired pay at a rate of 2.5 percent of basic pay for each year served beyond 30. Thus an officer with 33 years, for example, could receive 82.5 percent of basic pay as their annuity, and a member who serves 40 years would get the new maximum of 100 percent of basic pay.

Left on the Shelf

Congress failed to approve numerous Senate-passed initiatives popular with large segments of the military community. As a result, reservists won’t see an increase in GI Bill benefits. Disabled retirees rated as “unemployable” won’t see their full retired pay restored before 2009. Survivor benefits will continue to be reduced by VA Dependency and Indemnity Compensation (DIC), and there will be no change to the 2008 effective date of the paid-up rule on premiums for Survivor Benefit Plan (SBP) participants.

As in years past, Senators scored political points by winning initial passage of these initiatives but failed to fence off dollars to pay for them, spelling the end of the amendments when it came time to reconcile bills with the House.

For example, the Senate passed a provision to lower the reserve component retirement age based on how long National Guard or Reserve members were activated for the war on terrorism. Sen. Lindsey O. Graham (R-S.C.), chairman of the Armed Services subcommittee on military personnel, wants reserve personnel to be able to retire a year earlier than age 60 for every two years they serve past the 20-year mark.

“The biggest issue unaddressed in terms of [reserve] recruiting and retention is letting people retire before 60,” said Graham in an interview. Facing deployment every three or four years had taken a toll on career Guard and Reserve personnel, he said.

“Once they get up to the 20-year point, people are punching out,” said Graham. To be able to retire earlier in return for serving longer is one way to turn that around, he said.