RETIREMENT EQUITY Senator GLENN. General Boles we are depending on you to be the individual who comes forward. General BOLES. Sir, I have spent 30 years in the personnel business, long been aware of the rule and have briefed many retiring individuals about this provision of law and have always accepted it as that is the way it has always been, and not accepted it or thought that much about it as an equity issue. Senator GLENN. That does not mean it has always been fair, always been right, though, necessarily. General BOLES. I guess I come down to the view that any program which is inequitable or which is perceived to be inequitable by the population should be studied. As they have said, when we are talking about $450 million in a year in which we are drawing down, the equity issue versus the cost and the return to the people who would receive it should be a balanced one. [The information follows:] The Air Force is sympathetic to the intent of this proposal to better recognize the sacrifices of disabled retired members. However, the Department of Defense historically has opposed simultaneous payment of both retired pay and disability payments that derive from the same period of service. Proponents of legislation to allow simultaneous receipt cite comparisons with retired civil servants who continue to receive both VA disability payments and civil service retired annuities. A more accurate comparison involves a person who is eligible for both civil service retirement based on age/length of service and civil service disability_payments. The law does not allow concurrent receipt for this latter situation. Federal court rulings in this matter have cited the relatively young retirement age (and consequently longer duration of retired pay eligibility) as further justification for dissimilar treatment with respect to the need to waive military retirement benefits to receive VA disability payments. Precedents for applying this offset principle also reside with other government benefits. An individual eligible to receive age-based Social Security benefits cannot concurrently receive disability-based Social Security payments. Once the individual reaches age 65, the disability Social Security benefit automatically becomes an oldage annuity. The military Survivor Benefit Plan (SBP) also adheres to this philosophy. Payments made under SBP are offset by Dependency and Indemnity Compensation payments that derive from a member's service-connected death. Military retirees, who remain under the Uniform Code of Military Justice, provide the Nation with experienced individuals who are available to be called upon in a national emergency. Therefore, military retired pay serves not only as a pension during a member's old-age, but also as a "retainer" for possible future services or reduced pay for reduced service. For a member who is disabled and, therefore, not medically eligible to be recalled to active duty, it would not appear unjust to reduce retainer pay based on receipt of disability compensation. Enactment of the bill would significantly increase outlays from the military retirement fund which would cause an increase in the Normal Cost Percentage applied against an already austere Military Personnel Account to fund this outlay. În this fiscally constrained environment, allocating such substantial resources to this initiative would take its toll on other programs essential to the well-being of today's active duty force which would detract from our ability to attract and retain quality people for the Air Force. DISABILITY COMPENSATION Senator GLENN. We would appreciate your comments for the record, also. I hope these all do not come over as xeroxed copies. [Laughter.] Mr. BILIRAKIS. I wonder, Senator, if they would furnish their comments to the troops after they have prepared them before they sent them to Congress. Senator GLENN. That is a good idea. Senator Graham or Congressman Bilirakis, do you have any response to the comments of Mr. Jehn, his comments that the administration does not favor this and the reasons that were given? Senator GRAHAM. Well, I think, Mr. Chairman, we are dealing with persons who receive compensation for two different sets of circumstances. One receives disability pay because they have suffered an injury, one receives retirement because they have rendered years of faithful service and those are two separate events and to intermix them is, in my judgment, irrational and then to have a different standard for employees who are of the same Federal Government compounds irrationality into base unfairness. The person who has served in the military for the number of years necessary for retirement without having suffered a disability receives compensation for those years of service. The person who has served faithfully and in the course of that service has given part of their body to the Nation, I think is treated inequitably if that greater sacrifice is wiped out by the offset that is required against their retirement. Senator GLENN. I have one other question on this that does bother me. You know the budget rules we are operating under now, I do not know if you have addressed this or are trying to address it or not, but the CBO has estimated, I understand, that the cost of this will be $468.5 million annually. It creates a new entitlement. The cost under the Budget Enforcement Act is scored as pay as you go, that must be offset by reduction of another entitlement or increase in revenue. FUNDING Now do you have any ideas on how we are going to fund this? Because it would not pass unless there is an offset like this under the budget rules in which we are operating. Mr. BILIRAKIS. Senator, we know this is a problem. As I said before I have a reputation of being a fiscal conservative over on the other side. We know there are dollars that are being set aside, social security dollars to help make up for the fact that the pay that a military person has earned is going to afford him a lot less social security when he gets out and there are dollars that are set aside for that, and they really do not amount-and I am not really all that prepared to answer this at this point, even though it is something we have addressed over in the House. The dollars that have been set aside will not really benefit, it will just be a few dollars a month that will really benefit that particular retiree to sort of subsidize, if you will, his social security, and those dollars would probably be relatively, almost enough. Now, we have received a $200 million CBO estimate so this thing swings back and forth, if you will. So I am not really sure what that figure is, but in any case that is one way that we would propose that might be made available and Senator Graham and I are working with the Military Coalition on this funding proposal and once the plan has been finalized will be glad to furnish the chairman and the committee more details on it as sort of a partial response, if you will, to your question. RETIREMENT BENEFITS Senator GLENN. We would appreciate that. Senator GRAHAM. Mr. Chairman, I do not, but it would seem to me at this time when there is general agreement that there will be some reduction of overall defense spending below that which had been projected as recently as the fall of 1990 that this is the time to seriously look at this issue. I understand that currently the Department of Defense is allocating approximately $1.8 billion to $2 billion a year for military retirement benefits. This would have the effect of increasing that level of military retirement benefits to the extent that those benefits are not now being, would not be as offset by disability payments as they are currently. It seems to me that we should be flexible enough, particularly during this time of realignment of defense spending, to develop a fiscal process and structure to support these additional retirement benefits which would come as a result of eliminating this unfair treatment of 300,000 Americans. Senator GLENN. I would invite any additional comments or statement for the record where you would address the budget problem and submit it for the record, if you want to do that, because we are going to have to address that in committee or as we refer this with our recommendation to the full committee. That is going to be one of the first questions, where does the money come from? And under the budget rules we are operating under right now, we would have to address that before we could really expect to get it out on the floor, no matter how sympathetic I am with what you are trying to do, which I am. We are going to have to address the budget and if you could give us a statement on that for our record I would appreciate it. Thank you very much. [The information follows:] Mr. GRAHAM. Mr. Chairman, I have been working with a special subcommittee of The Military Coalition formed specifically to support passage of S. 1381. This group has worked diligently to determine ways to finance the "pay-go" provisions of S. 1381. Their intimate knowledge of the military retirement and other entitlement accounts under the purview of the Armed Services Committee has been a tremendous resource which I hope the committee will tap in exploring options for enacting S. 1381. This group has informed me that military personnel and retiree associations are prepared to accept a phase-in of the legislation in order to accommodate committee concerns about the bill's costs. This concession is in addition to the concession already made which substitutes full elimination of the offset with a sliding scale offset elimination based on level of disability. The concept which The Military Coalition has put forth would provide S. 1381 benefits only to individuals rated 90 percent or higher in the first year, 70 percent or higher in the second year, 50 percent or higher in the third year, 30 percent or higher in the fourth year, and complete eligibility for all receiving disability compensation in the fifth year. Enclosed is a table indicating how this would effect costs of the legislation based on CBO estimates. Second, The Military Coalition has suggested an offsetting mechanism which, although it does not pay for the legislation in its entirety, demonstrates a sincere commitment towards finding a financing mechanism. The option we are offering involves expanding the opportunity for military families to participate in the supplemental Survivor Benefit Plan (SBP), thus generating additional revenues in the military retirement fund. A special DOD study group proposed subsidizing SBP annuities for individuals over age 62. Under current law, when a spouse turns 62, the level of retirement pay which the annuity will replace drops from 55 percent to 35 percent. The study group recommended allowing widows over 62 to receive 45 percent of their spouses' retired pay using the same DOD/retiree cost sharing formula of 44 percent government and 56 percent individual contribution that is used for the basic plan. This enhancement would bring benefits for the military retiree annuity plan more in line with those for civilian retirees, who currently enjoy at least a 50 percent government contribution and 57 percent in some cases. For this and other reasons, the study group believed participation would increase in the program. According to actuarial data developed for the DOD, a subsidized supplemental option of up to 45 percent of retired pay will generate approximately $524 million in outlay savings over the next 5 years through increased participation. This savings could be applied to offset the near term costs of S. 1381: Attached are additional charts to demonstrate the merits of our proposal. A DOD Study Group on the military Survivor Benefit Plan (SBP) proposed that DoD subsidize post-62 Supplemental SBP annuities of up to 45 percent of retired pay using the same DoD/retiree cost sharing formula of 44 percent (government) and 56 percent (individual), that is used for the basic plan. The bases for this recommendation were: • The greater government subsidies for federal civilians who elect survivor benefits (50 percent for Federal Employees Retirement System (SBP) annuities and 57 percent civil service civil service retirement system annuities (Table 1). • The greater Federal Civilian SBP benefits per premium dollar (Table 1). • The lower percentage of military retired pay replaced by • The greater cost per dollar of benefit for military retirees (Table 3). This recommendation, fully supported by the majority of Services, was not supported by OSD in its report to the House and Senate Armed Services Committees even though the rationale for an enhanced military SBP is compelling. Significant is the reality that a Federal civilian, regardless of age, may purchase an annuity of 50 percent of retired pay for life for premiums of 10 percent. To illustrate: • A Federal civilian who retires at age 70 would pay a premium of 10% According to data developed by the OSD Actuary for the study group, a subsidized supplemental option of up to 45 percent of retired pay will generate approximately $524 million in outlay savings over the next five years through increased participadon. This savings could be applied to offset the near term costs of S.1381. |